I came across an interesting article this week – see here. JP Morgan are launching a US Equity ETF with a fee of just 0.02%. That makes it the lowest fee ETF available at the moment, beating Vanguard, Schwab, and iShares on cost.
This is great news for long term investors, as long as they make money. Now why wouldn’t they make money with a fee of only 0.02% you ask? With the rise of ETFs, there’s a lot of talk these days about how much investors are paying. Fund managers and financial advisers are frequently criticised for charging too much.
But here’s the thing: it doesn’t matter how cheap your investment is if you buy it when the market is doing well and then sell it during a downturn. You are going to lose money!
Here are a couple of excerpts from Tony Robbins’ “Money Master the Game” book:
For the 20 year period from December 31,1993, to December 31 2013, the S&P returned 9.2% annually. However the average mutual fund investor averaged just over 2.5%, barely beating inflation. They would have been better off in US Treasuries.
Another fascinating example is that of the Fidelity Magellan mutual fund. The fund was managed by Peter Lynch, who delivered an astonishing 29% average annual return between 1977 and 1990. However Fidelity found that the average Magellan investor actually lost money over the same time period. How can that be? Well, quite simply, they bought and sold the fund at the wrong time!
So what can we learn from this? Simply that if you focus too hard on fees, be careful not to lose sight of the big picture. If you are prone to making emotional investment decisions when markets are swaying, maybe it’s worth paying for a good adviser who can help you make sound decisions?
If you are able to buy that JP Morgan ETF, hold it forever, and add to it when markets are bleeding, then good for you! You are going to be very happy with the result over the long run.
If watching your investment value go up and down makes you nervous, maybe you are better off paying for a diversified managed fund with a blend of asset classes that is adjusted tactically by the manager. Then you don’t have to worry about buying and selling at the wrong time.
I guess what I am saying is; if you are a disciplined investor you should absolutely be conscious of fees, and minimise them where possible for best results. If discipline is an issue for you, or you simply don’t have the time, it may be worth paying for some help.
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.