Why Cost Matters…Above All Else

Greetings! 

Hope you’ve all had a great weekend. Each week, I will highlight one central idea for you to think through on your own. The goal, as always, is to break down the complex and make it as digestible as possible. 

This Week: Why Cost Matters…Above All Else 

First: In a 2003 article in CFA Magazine, Jack Bogle (founder of Vanguard) joked that the only concept we should care about as investors is the “Cost Matters Hypothesis”. (He was playing off of the older and more cherished Efficient Markets Hypothesis.) He believed that the only factually based hypothesis in investing that could be proven true 100% of the time was that, indeed, COST MATTERS. 

Now: consider this in relation to your own portfolio. How many of us actually know exactly what we’re paying in fees and how those fees are impacting our returns? 

My Personal Take-Away: After 20 years of investing, I have my personal portfolio down to four funds: VIGAX, FXAIX, QQQM, and VOO. That’s it. This provides me with low cost, broad exposure, and tax efficiency. (Note: as always, not recommendations.) I spent far too long pretending I could beat the market only to throw away endless gains on tax inefficiencies, trading costs, and load fees/commissions for various Mutual Funds du Jour. 

Action Item: this week, I want you to aggregate your fees. You are going to look for the fund fees (expense ratios), the frequency of trading, the tax efficiencies (or lack thereof), and if you have any “front end” or “back end” load fees. That’s all. No need to modify anything, but I do want you all to be highly conscious of what the gross fee is, so you can appreciate what it’s doing to your net returns. 

Have a great week, and will always try to get us all one step closer to where we need to be.

Tyler