This is exactly the right question and a lot of you have asked it. We try to answer it in what I guess is too hidden a place on the Mutual Funds Cost Calculator site. (You reach it by clicking "more" on the first page.) Click here for a direct link. Two sections are most relevant: Because Predicting Costs Is Much Easier than Predicting Performance . . . and . . . But Don't You "Get What You Pay For?"

But if you have time, read it all and let me know what you think.

Rodney Skidmore doesn't buy it. He writes: "Give me an 'expensive' manager that delivers over a low cost manager that loses money, any day."

Absolutely! Of the 11,000 funds out there, please list for me, below, any 3 that will significantly beat the market over the next few years on an after-tax basis:

1. _________________

2. _________________

3. _________________

We'll check back a few years from now, and you'll probably be rich and I'll probably look like an idiot.

Even so, it's just a lot harder finding these funds looking forward than back. Which is why instead of comparing a high cost manager that "delivers" with a low cost manager that loses money, I'd compare the high cost manager with a low cost manager that makes money -- as so many do.

It's counter-intuitive that really bright guys and gals who work at it can't fairly consistently beat the market, and by more than the extra 3%-a-year handicap, say, that a high-cost, tax-inefficient mutual fund might have to bear. After all, in a normal environment, where stocks may be expected to return about 10% a year, having to do 3% better than the pack to cover the added costs -- just to wind up doing average, that is, after costs and taxes are deducted from an investor's return -- is merely to have to do 30% better than the rest. And why should that be hard?

Well: it is.

And, with a high-cost, tax inefficient fund, that merely gets you even with the pack. Actually to beat the pack, you have to do better still.