Study finds that low fees are best indicator of mutual fund performance

Re:Study finds that low fees are best indicator of mutual fu... by bolu on Monday August 16, 2010 @12:48AM (#1606873)

Makes sense, though it's probably a correlation to the root source of outperformance, which is being an index fund. Cheaper funds tend to be index funds, index funds tend to outperform, thus cheaper funds end up outperforming more expensive (usually more actively managed) funds. One of the seminal studies on this is http://www.firstquadrant.com/downloads/How_Well_Have_Taxable...

What's more, the more expensive (again usually actively managed) funds tend to have high turnover, and turnover implies a huge tax penalty for taxable investors in taxable accounts. So if anything, the winnings of lower-fee index funds are understated, as turnover-generated tax hits are not disclosed well.

I agree with the author completely - hopefully more disclosure, legislated, would entice more people to shop for lower-fee funds.

(Full disclosure, I run a startup that's based on helping people do index investing, so I might be biased ;p)

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Re:Study finds that low fees are best indicator of mutual fu... by davidw on Monday August 16, 2010 @01:14AM (#1606929)

So what do you think of ETF's? From what little I've read, that seems like a pretty good way of doing index investing.

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Re:Study finds that low fees are best indicator of mutual fu... by bolu on Monday August 16, 2010 @01:25AM (#1606942)

They're good - gotta watch out for your effective expense ratio, which is the amount of commission you pay for the trade (depends on your brokerage house and the ETF) divided by the years you plan to own it, added to the ETF's own existing expense ratio. So net net, buy in larger chunks, or find one of the no-commission-ETF houses.

Also, and it sounds like you are, you need to be familiar / comfortable with limit orders or market orders. That sometimes can scare folks who are used to not-very-time-sensitive daily-priced mutual funds.

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Re:Study finds that low fees are best indicator of mutual fu... by davidw on Monday August 16, 2010 @02:17AM (#1607020)

Actually I don't know much at all about investing. I know what a stop loss order is, but I don't think I'd know how to use one effectively.

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Re:Study finds that low fees are best indicator of mutual fu... by bolu on Monday August 16, 2010 @02:43AM (#1607052)

You probably won't need it, unless you're doing something significantly more complex than the fundamental buy-and-hold index investing strategy.

I'd just use market orders all the time except I'm a little freaked out about momentary (on the order of minutes) market freak-outs as happened a couple months ago. Limit orders priced at the current price (or 1 cent higher) is pretty much just my way of enforcing a sane market order.

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Re:Study finds that low fees are best indicator of mutual fu... by mcknz on Monday August 16, 2010 @12:33PM (#1608269)

Stop limit orders are a good way to determine when to sell, which is the toughest decision to make. Even if you are dollar cost averaging into a position, you can set a limit order to protect profits, or prevent a large loss. I've seen some recommendations to put a stop limit order of a certain percentage on any new position for stocks/ETFs as a way to keep emotion out of your decision. A trailing stop limit order allows you to sell only when a stock/ETF goes down.

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Re:Study finds that low fees are best indicator of mutual fu... by mhb on Monday August 16, 2010 @08:31AM (#1607561)

You should probably read this:

http://www.businessweek.com/magazine/content/10_31/b41890509...

It's about commodity ETFs so maybe index fund or other ETFs don't have the same problem, but the message I got out of it is that there are plenty of unknown unknowns here.

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Re:Study finds that low fees are best indicator of mutual fu... by davidw on Monday August 16, 2010 @08:39AM (#1607579)

> "I make a living off the dumb money," says Emil van Essen, founder of an eponymous commodity trading company in Chicago. Van Essen developed software that predicts and profits from pre-rolling. "These index funds get eaten alive by people like me," he says.

Yeah, that sort of thing is what scares me about investing. I don't want to do it full-time, but it looks like there are tons of smart people out there who do make it their job, and are out to get you.

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