When it comes to choosing a mutual fund, take lower costs over higher returns. That’s one key takeaway from a recent Forbes article about an October convention of the Bogleheads, the groupies of John C. Bogle, founder of the investment management firm Vanguard.
Bogle is known for his promotion of an investing approach that avoids active and expensive management and lets a portfolio ride along with the market.
Forbes quotes Bogle as saying on the second day of the conference, “cost is the only thing that matters.” To evaluate a mutual fund the Bogle way, Forbes suggests, look at:
- “The fund’s expense ratio: essentially, its operating costs, such as the fee paid to the manager, taxes, legal expenses, and more
- Turnover: how often a fund’s assets are traded; the higher the turnover, the higher the transaction costs associated with the fund
- The load fee: the charge to the investor when buying or selling shares of a fund.”
In the best-case scenario, all of the above would be low or below average.
Bogle backs buying the market and was quoted as saying the odds are against investors who hope to choose a good fund manager: “Why pay people to do what you can do yourself?”
But many company 401(k) plans only offer their employees a choice of mutual funds, not the lower-cost exchange-traded funds.
“While some investors might protest, saying that buying the market will guarantee you only ‘average’ returns, Bogle says that after taking fees into account, you’ll end up outperforming others,” the magazine explains.
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