October 15, 2012
Controlling Costs – A Financial Recipe for Success
I have seen people drive miles out of their way for the cheapest gas, shop at multiple grocery stores for the best prices, and even wake up at uncanny hours to receive the best deals on holiday presents! As consumers we are always looking for a good deal, and price is one of the largest factors in determining if we have succeeded!
Fortunately for the everyday investor, investment companies are now starting to compete on cost as well.
- 9/21/12: Schwab announces that is has the lowest expenses among ETF providers.
- 9/26/12: Vanguard rebuts with its article, Low Costs: Part of our DNA. In this article Vanguard explains that they have adhered to this low cost philosophy with its funds since the founding of the company.
Competition among investment companies can help price similar products efficiently for the everyday investor. Also, Schwab and Vanguard are seeing more assets flow into their ETF’s and index funds as of late because “it’s becoming more and more clear that it’s difficult for a manager to consistently outperform [their respective index]” says Mike Rawson, an ETF analyst for Morningstar, in a recent Investment News article.
With market returns being below historical averages over the past decade, investors seem to be “tightening the belt” and focusing their attention on the bottom line. Rawson also stated that “costs matter more when expected returns are low. If you’re expecting only a 2% or 3% return, a 1% fee seems a lot more expensive.”
Rawson is right. However at Rockbridge, we think that price ALWAYS matters, thus why it is important to control the controllable. In a low return environment, giving up one third of your overall investment return to fees is not a recipe for success!
Our motto here at Rockbridge is “Building Wealth with Simple Disciplines” and we have been doing that for clients since the early 1990’s. It seems that the financial industry may be catching onto some of our beliefs, which is a good thing for investors everywhere. However, if this is just another one of Wall Street’s short fads, I can promise you one thing – Rockbridge won’t be abandoning ship!