Sunday, April 09, 2006

"Sell me a more expensive index fund, please!"

From time to time the Senior Assistant Blogger sounds off about the high expenses imposed on investors. Here's a good reason to pay him no heed, from Mark Hulburt's column in The New York Times:
MANY index funds track the Standard & Poor's 500, but they differ from one another in one major respect: their fees. You'd think that it would be obvious to investors to pick the fund that charges the least. But you'd be wrong.

In fact, this truth was anything but obvious to a group of elite students. In an elaborate simulation created by several researchers, many students at Harvard and the Wharton School of the University of Pennsylvania failed to select the lowest-cost index fund for their portfolios, even when they were all but spoon-fed the right answer.
If the best and brightest at our graduate schools of business can't grasp mutual fund costs, what chance has the average investor?

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