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I’m sure many Humble Dollar readers have read various iterations of this innumerable times.
I was just reading Adam Grossman’s (soon to be published on the HD website) weekly email where he quotes Warren Buffet as stating, “Performance comes, performance goes. Fees never falter.”
John Bogle’s is famously quoted as saying, “You get what you don’t pay for. Costs matter.”
Yesterday I was speaking with my daughter in law about these famous quotes when urging her to investigate what her 403b fee is. I looked at my Morningstar Portfolio Manager and reported to her that our portfolio expenses are 0.05%.
So how about it HD readers? What is your portfolio expense percentage.
And for those HD readers who have a financial advisor whom they pay an asset under management fee, why do you choose this route?
No judgement here. There are many good reasons to pay an AUM fee. As an example if my cognitive abilities fade we will probably pay such a fee to either Vanguard, or a financial advisor. Despite my best efforts my wife continues to show no interest in the concepts of personal money management.
I have never used a financial advisor because I feel comfortable managing our investments, although I do seek tax advice from my CPA at times. I imagine most others who read or contribute to Humble Dollar are likewise comfortable handling their own investments. Buffett has suggested that while some level of intelligence is necessary, its the control of emotions that determines long term success in investing. For this reason, I think each investor must “know him or her self” and the wise ones will seek advice if they are not comfortable managing their financial investments. While the fees paid do add up over the decades, consider the damage done to a portfolio by an investor who panics and makes poor decisions.
Thank you so much for this eye opening article!
I just did a bit more analysis of our portfolio after realizing that the real benefit of figuring out our total ER is to identify whether there are places we can cut it back. I also realized that it’s not really accurate to include in the denominator asset values that inherently have no ER. For us this includes things like CDs, iBonds, and individual stocks. I also don’t count the ER of the cash positions held in money market mutual funds at our brokerage because by the time I net off the fund expense fee it ends up paying the same amount of interest as a high yield online savings account (right now 3.9%).
By removing those items from my ER analysis I’m left with only ETFs that attract some sort of ER. That didn’t change the numerator I started with, but it made the denominator smaller, thereby increasing our average ER quite a bit to 0.38%. In terms of dollars, 2/3 of the ER comprises the AUM fee we’re paying to a broker to robo manage part of our portfolio.
The remaining 1/3 of the average ER comes from actual ER fees for the ETF positions. And of those, fully 1/3 comes from a single position our robo advisor put us in that has an ER of 0.36%. That really got my attention, so I did a bit of research on it and found out that a comparable Vangard ETF has an ER of 0.03%. A side by side comparison of their respective performance at various time intervals out to five years tells the tale, though. The high-priced ETF is consistently turning in a 1% better performance on both ups and downs than the Vanguard fund.
Conclusion: in this case it’s worth paying the higher ER for the better performance. AND – it’s worth paying my robo advisor for their insightfulness to put me in the higher fee ETF in the first place – a move I probably wouldn’t have made.
Thank you, again, for asking the question. This prompted me to do a nice year-end checkup and learn something about the total cost of owning and managing what we have.
Five years may not be enough history to justify the higher expenses.