Costs and Helpers (part 1)


26/03/2019 7:06:04 PM // Written by Phil Stockton

Costs and Helpers (part 1)

Welcome to part one of a three-part quick-look at investment fees, ‘Helpers’ and how you can improve your own investment returns with minimal effort.

First off, we’ll look at what a leading source of mutual fund research, Morningstar, have to say on costs:  

Morningstar produce some great data. Their recent fund fee study[1] showed that US investors saved more than US$4 billion in 2017 alone thanks to a lowering of fund costs. Morningstar attribute this to investors’ shifting to passive funds which is pushing down fees. In 2017 U.S. investors paid an average 0.52% expenses on some 25,000 funds; down 8% on 2016. Morningstar end the fund fee study with this statement:

“Morningstar research has demonstrated that mutual fund fees can sometimes be a reliable predictor of future returns, as lower-cost mutual funds generally outperform their more-expensive peers. This trend of falling costs for investors is certainly positive--and we’ll continue to monitor it.”

The research referred to in the above quote came from a 2016 paper by Russ Kinnel[2] where readers are promptly and confidently advised that:

“A fund's annual fee is the most proven predictor of future fund returns, says Morningstar's Russel Kinnel - and here are the stats to prove it”

Links to both Morningstar papers are in the endnotes – read them.

The message is clear: costs must be reduced where possible as any savings will compound in the investors favour over time. Costs are one investment variable that you can control and are sure-fire way of improving your net returns.  

Now that the scene has been set the next part of this three-part series will see what arguably the greatest living investor thinks about costs and Helpers.

Finally, we have a short video on this topic:  Why cost is even more important than before. You can watch the video here.

In part two we’ll look at what Warren Buffett has to say on costs and ‘Helpers’

In the meantime if you want to know how costs are impacting on your investment returns you are most welcome to contact us.

Links to part 2 and part 3.

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