The Fundamental Importance of Low Fees when Investing

[bitchstewie]

Brilliant article with some real world examples of the maths.

The fundamental importance of low fees when investing

[ILikeCake]

I don't dispute the maths but I always wince at these examples of average growth applied to vast time spans.

Most of the growth comes in the final years and completely ignores sequence of returns risk.

[xeny]

ILikeCake said:

I don't dispute the maths but I always wince at these examples of average growth applied to vast time spans.

Most of the growth comes in the final years and completely ignores sequence of returns risk.

Once you are fully invested, then as long as the return averages the 10% used in this example, it doesn't matter what order it comes in, you get the same answer at the end.

The issue with sequence returns to my mind is retirement followed by a period of poor returns, and I think you handle a portfolio differently between accumulation and deaccumulation to mitigate that.

TEA is impressively thrifty - his FT screen shot isn't logged in :-).

[thekingisdead]

ILikeCake said:

I don't dispute the maths but I always wince at these examples of average growth applied to vast time spans.

Most of the growth comes in the final years and completely ignores sequence of returns risk.

The longer you hold (40+yrs), your returns converge towards the long term average.

[bitchstewie]

This hammers it home

[SlimJ]

That’s why I stick with low cost index trackers!

If you’re paying 2% to track the S&P500 you’re a bit silly! 😆

[bitchstewie]

Don't think that's the point being made

Forget the investment.

I think the point being made is that even on something that you think is giving a bloody good return fees will murder how much of it you get to keep.

Now think what impact they have on an already sub-optimal return.

[ALawson]

A list of the lowest cost/best performing (for the lazy) would be helpful.

[Derek Chevalier]

bhstewie said:

This hammers it home

I'd love to know what the typical behaviour gap was for the S&P 500 from 2000-2010.

[bitchstewie]

Derek Chevalier said:

I'd love to know what the typical behaviour gap was for the S&P 500 from 2000-2010.

Do you have any numbers on the typical returns clients of an advisor realised during that period?

That period sticks in my mind when people say "oh just invest in the S&P" but I've never looked too hard at how someone with a typical advisor based portfolio would have done during the same period.

As I said I think picking the S&P is a bit of a red herring it's just a tweet that appeared on my timeline.

For me the takeaway is apply that 2% rule to any level of return and see what it'll do to how much of your returns you get to keep.

[Derek Chevalier]

bhstewie said:

Derek Chevalier said:

I'd love to know what the typical behaviour gap was for the S&P 500 from 2000-2010.

Do you have any numbers on the typical returns clients of an advisor realised during that period?
.

I haven't seen explicit data, but it would be a suboptimal outcome if you paid fees to a performance-chasing adviser who invested in a "what is working now" concentrated portfolio!!

Agreed on the importance of fees. It always surprises me that so many are prepared to pay ~1% for fund management alone.

[mikeiow]

bhstewie said:

Derek Chevalier said:

I'd love to know what the typical behaviour gap was for the S&P 500 from 2000-2010.

Do you have any numbers on the typical returns clients of an advisor realised during that period?

That period sticks in my mind when people say "oh just invest in the S&P" but I've never looked too hard at how someone with a typical advisor based portfolio would have done during the same period.

As I said I think picking the S&P is a bit of a red herring it's just a tweet that appeared on my timeline.

For me the takeaway is apply that 2% rule to any level of return and see what it'll do to how much of your returns you get to keep.

A timely reminder perhaps of the value of investing a little time listening to Lars!
https://kroijer.com makes a lot of sense to me.
Invest in the broadest tracker at the lowest costs…