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Is It Time To Move To Low-Expense Funds? On average they do better, but some top managers just cost more.(B)
By Pete McKenna
Investor's Business Daily
As the double- and triple-digit fund returns of years past slip into single digits and worse, expenses are playing a bigger role in returns.
Expenses that amount to 1.5% of assets go mostly unnoticed by investors in afund that's churning out 20%-30% returns. After all, at 30%, you'd be doublingyour money every 2.4 years.
But when the 1.5% in fees drags a fund from 10% to 8.5%, you may start wondering if the manager is spending his money wisely.
You should think twice before trading in a high-cost, top-performing fund for a low-cost one, though. While low costs can remove some drag from returns, they don't guarantee above-average performance. And some top managers spend more to generate their outsized returns.
Investors can see how much they're paying managers for running the fund by looking at its operating expense ratio. This can be found in the fund's prospectus, its Web site or through such third-party providers as Morningstar.com. The figure is derived by dividing the costs by the fund's average net assets. And it tells you how much of the assets in your account areused to pay the manager and other costs each year.
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