Most people agree that the benefits should be greater than the costs.  For example, I will pay $10 for something that is worth $11.  The problem is often that the costs are clearly known, while the benefits are only vaguely estimated.  If you’re spending $100 million to build a dam, how do you know if the benefits of cheaper electricity and water control over the lifetime of the dam will exceed $100 million.  How do you know the benefits of another billion-dollar aircraft carrier, and how do you measure those benefits?

Many investors feel that way about mutual funds.  After all, who wants to pay an extra layer of fees?  How do you measure the benefits of a dedicated full-time expert portfolio manager, a complete investment staff, greater access to better information, full-time asset supervision, etc?  The extra layer of fees can be determined exactly, down to the penny.  Unfortunately, those benefits cannot be more than vaguely estimated.

Mutual fund fees have been steadily decreasing each year since 2000.  They are down 40% over the last ten years and 26% over the last five years.  This decrease in expenses continues, with fees in 2017 at 0.71%, falling to only 0.67% last year for actively managed funds.  Passively managed funds are down even more.

How ever you measure the benefits of mutual funds, those benefits have not changed, while expenses are going down.  How come we don’t celebrate good news?