(New York)

If there was ever a mantra for mutual funds, it should be this: boring and cheap is beautiful. A new study by Morningstar has found that when it comes to the funds, investors are best off buying ones with very cheap fees, and not just for the obvious reasons. Morningstar dug deeper to understand the relationship between costs and performance gaps, or the spread between the return of the fund itself versus the fund’s average investor. What it found is that in low price funds, this gap was much smaller. While some of that might be accounted for by simply saying those who buy cheaper funds are smarter investors, the reality is that investors are more patient on returns when they hold cheaper funds. There is less incentive to sell, and therefore they hold the funds longer, leading to better returns.

FINSUM: This makes perfect sense to us. If you have an expensive fund that is losing money, you are going to want to dump it quickly. But if a fund is ultra-cheap, you are more inclined to give it some time.