Numerous studies prove that investment cost is one of the most important factors for investment performance. Mutual funds with high expenses usually provide poorer market performance. Therefore, select funds with the lowest management fees and attendant expenses.
Costs also include fund brokerage charges not included in your fund's expense ratio. The cost of buying and selling securities is passed on to you. It's advisable to stick with mutual funds that have low transaction volume.
A 2008 Lipper study discovered that buy-and-hold investors with mutual funds in taxable accounts lost to taxes between 1.3% to 2.2% of their annual returns over the previous 10 years. Minimizing the impact of taxes should therefore be an investor priority in fund selection.
One way to minimize a tax bill is to invest in tax-efficient funds that distribute little capital gains. Exchange traded funds, or ETFs, can help lower those distributions.
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