As consumers, most of us are used to the idea that you have to pay more for quality. A $300 refrigerator may end up costing you more in the long run if it breaks after a year. Or a $3 towel may unravel since it is poorly made. So we tend to buy more expensive brand names, assuming we’ll get something that is better performing.
Can we apply that same thinking to investments?
Do higher fee mutual funds and exchange-traded funds (ETFs) perform better?
A study by market data research firm Morningstar found that low-cost funds usually beat out high-cost funds, and are far more likely to outperform.
In other words, Morningstar found that those higher fee funds tend to consistently underperform!
What’s the lesson here?
One thing we can learn from Morningstar’s research: it pays to shop for funds with low fees. Over time, your savings can compound, keeping more of your own money working for you.