The Less You Give, The More You Receive

On July 1, 2012, group retirement plan service providers are required by law to more fully disclose their fees.  These long-awaited federal regulations are primarily focused on 401(k) plans, to give both participants and sponsoring employers a more transparent view of the fees they are paying.

Why is this important?  Because whether you’re a 401(k) plan participant or not, low fees are at the heart of a good investment outcome for any portfolio.

According to a 2010 Morningstar study ¹ that encompassed a 5-year look-back period, low-cost funds categorically outperformed high-cost funds.  In fact, in every asset class over every time period, the least costly quintile of mutual funds produced higher total returns than the most expensive quintile.

Morningstar went so far as to say that expense ratios were the most dependable predictor of performance.  “Investors should make expense ratios a primary test in fund selection,” the study concluded.  “If there’s anything in the whole world of mutual funds that you can take to the bank, it’s that expense ratios help you make a better decision.”

As with 401(k) plans, the only way you can know whether your investment fees are low is to determine what those fees are, and how they compare with others.  If you have any doubt, contact someone who can help.