Keep your investment expenses low!

“How Do Fees Affect Plans’ Ability to Beat Their Benchmarks?”

by Jean-Pierre Aubry and Caroline V. Crawford

The brief’s key findings are:

• One way that public pension plans assess their investment performance is to compare returns by asset class to selected benchmarks.
  
  
• Plans pay fees to external asset managers with the expectation that they will exceed the benchmarks.
  
  
• As these fees have come under greater scrutiny, the question is whether higher fees help plans outperform their benchmarks.
  
  
• The analysis, using new data for 2011-2016, found that plans that paid higher fees experienced worse performance relative to their benchmarks.
  
  
• This finding held across all major asset classes, but was particularly pronounced for alternative assets, such as private equity and hedge funds.

This brief is available here.

Quoted from the Center for Retirement Research at Boston College. 

Take-away: Keep your expense low by investing in low cost index funds (not all index funds are low cost).