This isn’t really news to anyone who’s been following funds or the literature. But it’s nice that there’s a recent study which reassures us that the common-sense idea that you get to keep more if you pay less is, in fact, true.
How Expense Ratios and Star Ratings Predict Success
We test the ability of expense ratios and star ratings to predict funds that will survive and beat their peers.
If there’s anything in the whole world of mutual funds that you can take to the bank, it’s that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.
Expense ratios are strong predictors of performance. In every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile.