The right way to settle this debate would be with facts — do mutual funds with
higher expense ratios outperform ones with lower expense ratios?
Not exact matches
And while cutting investing costs can't guarantee a larger nest egg, Morningstar research shows that funds with the lowest
expense ratios tend to
outperform their
higher - fee counterparts.
Almost everybody these days says that passively managed, low
expense ratio funds
outperform actively managed,
high expense ratio funds.
Mutual funds charge annual fees regardless of the fund's performance, and the
higher a fund's
expense ratio, the more the mutual fund manager must
outperform the market to offer investors a better return than low - cost, index - tracking funds which are not actively managed and have fewer operating
expenses.
The
expense ratio is a little
higher but it
outperforms its benchmark more than enough to make up for this.
If you got what you paid for,
high -
expense ratio funds would
outperform low -
expense ratio funds.
That said, other Morningstar research has found that low - cost funds typically
outperform their
high - cost counterparts and that fund
expense ratios are a predictor of future fund returns.