If you are interested in a few funds, lower expense ratios make an excellent secondary factor. Would you rather invest in a fund that charges you 1% or 1.25%? Simple math says if the returns are about equal, you would want to pay lower fees.
Now that you know about expense ratios and how they can change your investments, where do you find them? Well, the good news is that they are relatively easy to find. Funds are required to make them known to investors, so we’re not talking about hidden fees here.
Any fund you invest in will have operating expenses, so no, if you are a mutual fund investor, you can’t avoid them. Don’t let it deter you, as other investment choices will have costs associated with them as well. However, what you can do is find funds with relatively low costs associated with them.
Your investment strategy comes down to how active or passive you want to get with your investments. Over the long haul, actively managed funds don’t typically outperform index funds. With the higher fees involved and similar returns, passive investing make sense for most of us. Index investing allows us to put our money in an index fund and forget about it, making better use of our valuable time.
However, mutual funds can outperform index funds over a short period of time. In investing terms, that might mean a few months or even a few years. If you want to take on a more active role in your investing, you can review and rebalance your portfolio as you see fit. Short-term investing can be difficult in a good market, nevermind a volatile or bear market. Please make sure you are ready to put in much effort consistently see returns high enough to make an effort and higher expense ratios worth it.