DO YOU KNOW YOUR FEES AND COSTS?: ILLUSIONS OF INVESTING, PART 4
Paul Adams
Helping clients Design and Build a Good Life - Founder/CEO/Podcaster/Entrepreneur
EPISODE SUMMARY
In this episode of Your Business, Your Wealth, Paul and Cory continue their discussion on illusions of investing in the marketplace. In part four of this series, Paul and Cory talk about the importance of understanding fees and costs of your investments. Specifically, they focus on the illusion that mutual funds come without any hidden fees or costs to you as an investor. Paul speaks to transaction costs, cash drag, the bid-ask spread and turnover ratio, to name a few examples of fees that can impact your investments. Finally, Paul encourages the audience to independently investigate different mutual funds in the market to gain a better understanding of the real costs associated with these types of investments.
WHAT WAS COVERED
02:43 – Paul recaps the topics of the last three episodes on illusions in the marketplace
03:20 – Introducing today’s topic, Illusions of Investing Part 4: Do You Know Your Fees and Costs?
03:57 – Paul takes a look at an article by Forbes on the real cost of mutual funds
06:10 – Transaction cost, explained
07:56 – Paul provides an example of a time he pointed out hidden fees to a client who was unaware of these fees
10:02 – Cash drag
12:08 – The story of the two cousins
14:59 – Paul interrupts the podcast to provide the audience with a special offer
16:00 – The Bid-Ask Spread
18:13 – Turnover Ratio
19:36 – Paul quotes the great investment consultant, Charles Ellis
20:31 – Paul encourages the audience to investigate the turnover ratio of their mutual funds
21:01 – Paul teases the topic of next week’s episode
TWEETABLES
We’ve talked a little bit about stock picking – why stock picking doesn’t work – why track record investing doesn’t work, and why market timing doesn’t work. Now, when I say they don’t work, I don’t mean they never. I mean that they don't work for you.
Our returns from a mutual fund are paid to us as the net proceeds of every trade.
Most mutual funds are purchased not with any kind of rigor. But they’re sold by the investment advisory community, bought by clients who oftentimes do not have the best behavior when markets are volatile.
The higher the turnover, the less likely it is they’re going to win, or outperform, the index that they’re being compared to.
The key question is, under the new rules of the game, how much better must the active manager be just to recover the cost of their active management? The answer is daunting.
To listen to the full episode, and read show notes, which includes a FREE PDF of the transcription, visit: https://sfgwa.com/ep166.