Costs really do matter, in every area of life. Not only that, but understanding what is behind the costs is very important. For example, most of us realize that – just like the price of individual stocks or the level of the Dow, which hurtled past 22,000 on Wednesday – the sticker price on a car isn't the result of some sort of divine revelation or a fixed number set by law.

Instead, it's a function of what the manufacturer thinks the car is worth, what the dealer paid for it and what the dealer thinks the car will sell for. Similar concepts apply in investing. One important measure of an investment’s cost is its expense ratio. Generally, studies and comparisons over time have shown that investments with relatively high expense ratios have a harder time achieving alpha.

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