Ever heard of SMART goals? The “M” stands for “measurable.” For example, a writer might have a goal stating: “I will write every day.” That's not a SMART goal. It doesn't say how much I will write every day. Writing “Wish you were here!” on a postcard would meet this goal. It would not, however, satisfy the goal's objective (to become a better writer). A SMART goal might say: “I will write 500 words a day.” But does this still meet the objective? Not if I write the word “SMART” 500 times. A better SMART goal would be “I will write a chapter a day.” Just because we can measure something doesn't mean it's relevant to our purpose.

The temptation to quickly measure scours our ability to correctly assess the impact of fees on mutual fund productivity. We don't buy mutual funds to spend less money, which the unfortunate focus on fees implies. We invest in mutual funds to make more money. A “productive” mutual fund makes us more money (not necessarily the “most” money).

There lies the crux, or, more appropriate for Valentine's Day, the “heart” of the matter. Like any other company, a mutual fund exhibits a certain cost of doing business (e.g., regulatory, compliance, and professional management costs). These costs are added together to create the fund's “expense ratio.” This is located on page 2 or 3 of the fund's prospectus under the heading “Risk/Return Summary: Fee Table.” Moreover, that fee table provides an important clue to those measurable fees that matter.