Where do you draw the line between cheap and nasty and great value for money?

The debate about the merits of the MySuper proposal in the Cooper Review of our super system seems to be polarising around the notion of low costs. The Cooper panel proposed My Super as a simple, transparent default option - which is where around 80% of super fund contributions are invested - with a single, diversified investment strategy set by trustees to maximise returns to members.

Hardly a revolutionary concept, you may think.

Yet it has sparked quite intense commentary around the notion that low cost investment options mean lower returns.

In some facets of life the more you pay for some things the more you get. But as investors there is one hard reality - the more we pay out in fees and taxes the less we get to keep and spend in retirement.

Investors - and super fund trustees - have much more control over the costs that they pay than the returns investment markets will deliver in the future.

Some asset classes and investment approaches are more expensive to implement and manage than others. But nowhere in the Cooper review did it say super funds had to take the lowest cost option. Rather it was up to the trustees to set the investment strategy and if they wanted to invest in more expensive strategies - alternative assets for example - then that was their prerogative. The only caveat being that if they wanted to pay higher fees for a particular investment style they should be confident it would in turn deliver higher returns to members to justify the higher fees.

Whether you are a super fund trustee or an individual investor that seems a realistic filter when deciding where to invest money.

Some investors are comfortable taking more risk in the expectation of higher returns and accept paying higher fees may be part of the deal.

But just as paying higher fees does not guarantee higher returns - indeed it raises the hurdle rate even higher - neither do lower costs equate automatically to lower returns.

Inherently future returns are unpredictable and this week research house Standard & Poors provided a timely reminder with the release of its mid-year scorecard that measures how actively managed funds are performing against the relevant market or asset class benchmark.

What this six-monthly scorecard - available from the Standard & Poors website - shows is that a "majority of active funds across most of the peer groups failed to beat their respective benchmarks " over a five-year period to the end of June 30, 2010.

In the past 12 months - a difficult period for equity investors it has to be said although reputedly a time of opportunity for some active management styles - 72% of equity funds failed to beat the S&P200 accumulation index, according to S&P.

So for most investors the higher costs paid in the past 12 months did not generate higher returns and they would understandably be disappointed with that.

But point in time return numbers are just that - a snapshot of history. And building a portfolio is about more than just the historical return number.

We should expect different investment styles and asset classes to have their time in the sun as we move through the various market and economic cycles. Indeed underperformance may be a poor reason to sell out of an investment if the manager is being true to their style and objectives.

But costs do matter and the promise of higher returns should not triumph - regardless of what size super fund you are a trustee of - at any price.

Value for money is the bottom line for investors.

Robin Bowerman is Head of Retail at index fund manager Vanguard Investments Australia. To receive this column by email each week go to www.vanguard.com.au and register with smart investing.