Mutual Fund Fees & Expenses Eat Your Investment Returns
It’s easy to look at mutual fund performance as the best indicator of how a fund will do in the future. That’s the normal thing to do for most investors. The problem is it’s the wrong thing to do!
Mutual fund performance is relevant to your investment plan to the extent that you can predict performance. Performance history is completely irrelevant for the most part – with the main exception that mutual fund fees and expenses are a direct indicator of performance in the future.
Low Fees & Expenses Increases Your Returns
The lower your mutual fund fees and expenses are, the higher your investment returns. Every dollar the mutual fund management company takes out of your pocket is a dollar lost, and a lower investment return. The lower the dollars they take the higher your returns.
Since there’s no predicting investment performance into the future with any reasonable degree of certainty or accuracy, the single best indicator of mutual fund performance in the future is low fees and investment expenses.
The Lowest Fee Mutual Funds Are Index Funds
If you really want to keep your mutual fund fees and expenses down, invest in low cost index funds. By their very nature index mutual funds are lower cost than their actively managed counterparts.
Actively managed mutual funds have higher overhead and expenses. They require the use of managers and generally pay for more marketing. Actively managed mutual funds can be great for some investors, and some investment portfolios. But for the majority of us index mutual funds are the best path towards investment success!
The Best Mutual Fund Investment Advice
The best mutual fund investment advice is to plan first. The term “best mutual funds” gets tens of thousands of searches on google every month. This tells us that by far most investors are focused on chasing performance rather than investing for a goal.
Don’t chase mutual fund performance by buying the hot funds! Get an investment plan, use index funds to keep costs down and you’ll be well on your way to investment success!