John Bogle on Mutual Funds: Cheaper is Better

WSJ Article

"In every asset class (U.S. stock funds, international stock funds, balanced funds, taxable bonds, and municipal bonds) over every time period," Morningstar wrote, "the cheapest quintile produced higher net returns than the most expensive quintile." Among domestic equity funds, the returns of the lower-cost funds outpaced the returns of the higher-cost funds by about 1.3 percentage points annually. That proves to be a compelling edge. Over a 50-year investment lifetime, for example, a return at the 8.1% historical average for stocks would produce nearly 50% more capital than a return of 6.8%.

Despite the irrefutable evidence on the impact of fund costs, fund expenses continue their upward march. According to data Vanguard has collected from the Investment Company Institute (2009) and Wiesenberger (1960), the expense ratio of the average equity fund weighted by fund assets has risen to 0.86% in 2009 from 0.54% in 1960, an increase of 59%.

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