It’s official. Again.
New objective research has confirmed what a mountain of prior evidence has long indicated. That is, investment fees are correlated to investment outcomes.
A new study by Morningstar, Inc. reveals the facts. In short, the lower the expense ratio – a measure of a fund’s total investment fees – the better the risk-adjusted performance.
What makes this study even more compelling is its source. Morningstar has long been considered the industry leader in mutual fund research and analysis, ranking funds using a star-rating system. Now, based on its own research, Morningstar admits their star-rating system takes a back seat to fees when determining the probability of a fund’s success.
So why do most ‘financial advisors’ continue to ignore the facts and invest in funds with higher expense ratios? Because their income is usually based on commissions received from the higher fees charged within the investment/insurance products and funds they sell. These higher fees mean a greater income for them, but a lower return for investors.
Lesson learn again: Don't pay more for something that adds no value.
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