Don’t Pay Fees, Part 2

In a recent article on “Mistakes Investors Make” in the Wall Street Journal, Christian Magoon suggests that we should not focus on fees, but rather we should look at a fund’s performance. This is so wrong it’s laughable. Another contributor to this article, Manisha Thakor, tells us why:

The biggest mistake I routinely see is not paying attention to fees. The difference between a low-cost index-oriented fund with a 0.25% expense ratio and an actively managed fund with a 1.25% ratio may not seem such a big deal on the surface. Yet assuming 7% returns, over a 25-year time period, that incremental 1% in fees will eat up over 25% of your return.

It doesn’t get much clearer than that. Don’t pay fees. If you have to pay fees, keep them low.