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What you should know about implicit costs: 

When stocks and bonds are bought and sold within a mutual fund, costs are incurred in the form of bid/ask spread, commissions and/or exchange fees. These fees are commonly referred to as trading costs.  Studies show that trading costs vary among asset categories. Turnover measures the replacement of holdings (trading) within a fund as a ratio of the total holdings.  Regardless of the asset category, greater turnover equates to greater overall costs an investor incurs.  Unfortunately, a fund’s turnover costs aren’t expressed as part of its expense ratio but, rather, they’re estimated as part of the fund’s Statement of Additional Information (SAI) and are absorbed by the fund’s shareholders in the form of lower returns.

According the Center for Retirement Research at Boston College, “about one third of….savings can be achieved by changing just the structure of an investors’ investment options to reduce the fees they pay their financial service providers.  About two-thirds of this savings would result from reductions in trading costs made possible by restricting.”

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