3 Reasons to Go Low-Cost

Survivorship, fund returns, and the return gap-you should know the other two reasons to own lower-cost funds

John Rekenthaler 27 July, 2016 | 11:51
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Cheap mutual funds tend to have higher returns. The less money the fund removes from its asset base, the more money is available for shareholders. You knew that already. But do you know the other two reasons to own lower-cost funds?

Live Long and Prosper

One is that cheaper funds live longer. Low-cost funds are significantly less likely to be liquidated or merged out of existence than are pricier funds. Consider, for example, the five-year survival rates of diversified U.S. stock funds, sorted into expense quintiles, through the end of December 2015.

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About Author

John Rekenthaler  is vice president of research for Morningstar.

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