The average investor isn’t stupid. The latest evidence comes from a look at where investors are putting their money, taken by the Morningstar mutual fund data organization.
When Morningstar ranked funds by how much they cost their investors, from the top 20% to the bottom 20%, they found that the lowest fee equity and fixed income funds were receiving new money from investors, while money was draining out of all of the other funds. In other words, all the growth was in the lowest-fee mutual funds. (See chart for more details.)
Morningstar has repeatedly found that the mutual funds with lower fees have tended to outperform higher-cost funds—and its rankings now include measures that look at how well different companies align their policies with their investors’ best interests. Companies that are maximizing their profits at the expense of their investors are discovering that investors have caught on to the game.
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