Pay lower investment expenses to get higher investment returns While financial services industry sales people tell you that you need to pay more to get more, the correct answer is the opposite.
Excessive investment costs are a plague on your personal financial planning. Excessive investment expenses are one of the most significant barriers to lifelong family financial security. If you pay less, you are likely to get more.
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The scientific investment literature provides pitifully little encouragement that individual investors can:
* predict individual prices of stocks and bonds or the future value of the securities markets
* select a securities portfolio that will beat the market consistently, and/or
* identify and hire investment managers who will deliver superior performance net of their added costs.
While there is very substantial variation in the returns achieved by one individual investor or professional investment manager, when compared to another, failure or success is overwhelmingly due to luck rather than skill. Resulting from real-time competition among armies of high and low skill investors, risk-adjusted securities market prices tend to make everyone mediocre over the long-term. Luck dominates, when informed investors on both sides set market prices that continuously balance supply and demand and rapidly adjust, as new positive and negative information becomes known. Sustained securities selection prowess is very, very scarce, and certainly, it is not available for individual investors to hire at a reasonable price that leaves them a net profit. (See: Can you really beat the securities markets?)
Superior and sustained skill-based performance net of costs and taxes has been too elusive to find after hundreds of scientifically constructed securities market studies. While lucky past winners may tout their historical prowess, the scientific investment literature has repeatedly demonstrated that better past performance simply is not a predictor of future performance. The small print of the legally required, “protect-your-behind” securities disclosures is actually correct.
All the securities industry’s promotional “Historically, We’re Been Better than the Other Guy” marketing messages just draw your attention toward meaningless superior historical performance charts or stars that are predominantly accidental. Surprisingly to most investors, it turns out that only the very worst of past performance tends to be a very slight indicator of future performance. Relatively poor past investment performance slightly predicts relatively poor future investment performance. Again, excessive costs seem to be the main culprit associated with past poor performance leading [...]