A Simpler Way to Pick Mutual Funds?

There's been a lot of talk in investing circles lately about a recent study showing that the best predictor of performance for mutual funds was the funds' expense ratios, which did the job even better than the famous Morningstar mutual-fund star rating. What's most remarkable about the study is that it was conducted by Morningstar itself.

The fund-rating firm took funds' star ratings and expense ratios from 2005 to 2008 and compared those to its returns as of March 2010. The star ratings did their job - higher-rated funds outperformed lower-rated ones 84 percent of the time. But they weren't as effective as looking simply at the expenses.

In a way, this study fits in with many of the time-tested principles of investing, in particular the idea that you can't beat the collective wisdom of the stock market. And there's no reason to pay high fees to a fund manager if he or she can't outsmart the market with your stock picks.