Why fund fees matter

When of the most important things for long-term investors in funds to consider is costs. Matthew Partridge explains.

It's easy to overcomplicate the process of investing in funds. Active or passive? If active, which manager? Should you opt for income, value or growth, or focus on a particular sector or country? The choice can seem overwhelming. Fortunately, there's one simple thing that matters more than any other over the long run costs. Countless studies have shown that low-cost investment options, ones that keep a lid on fees and charges, consistently beat those that are more expensive. The good news is that cost is also the one thing that you, as an investor, have any direct control over.So how can you find the cheapest funds?

The funds with the lowest fees tend to be passive funds or trackers funds that aim to replicate the performance of an underlying market, rather than trying to beat it. The typical actively managed equity fund in the UK All Companies sector has a total expense ratio (TER) of 1.57%, according to research provider Lipper. Yet the TER for passive funds averages just 0.54%, and fees for some popular trackers are below 0.1%.

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Dr Matthew Partridge
Shares editor, MoneyWeek

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri