We limit a fee’s drag on performance by keeping our’s low: nothing for cash and 0.30% for everything else.
Before we cite the evidence that fees are the primary driver of performance among portfolio managers, it is worth commenting on the track record of “the experts” to predict the future. There are plenty of entertaining articles and blogs on the subject, and we list a few on the right, but the overwhelming conclusion of nearly all is that experts do a terrible job of forecasting. It is laughable now to remember books like “The Population Bomb” and “Famine 1975!”, but it’s also scary to witness an expert’s consistent appeal despite their inevitable rash of misses. Humans seem to have a genetic desire to know the future, or at least believe in someone who does, despite its proven illusiveness.
The inability to predict the future is even more fraught when applied to financial markets. Predictions of famines, overpopulation and oil shortages tend to underestimate the human propensity to innovate and advance. Getting the direction of the stock market or interest rates correct (let alone picking the correct basket of stocks or sectors that will most likely outperform) is even harder. The current price already reflects “the wisdom of crowds.” Belief in efficient markets aside, more irrefutable evidence is accumulating: fees are the best predictor of fund performance. What isn’t always appreciated, though, is how much those fees can cost investors over time. (Support for both statements provided through the links below.)
SEED limits this drag on performance by keeping our fees at a low 0.30%. We don’t charge at all for cash. When appropriate, we seek the lowest fee index funds and ETFs. For those with more assets who can benefit from the more tax efficient and customizable strategy of owning a diverse basket of stocks and bonds, we also charge 0.30%. Even at that rate, we are competitive with ETFs with similar value biases.