Fees are really important. And people looking
at fees say, “No, they can’t be.” And I say, “Yes, they are.” And people say, “They can’t
be.” And then they think of a four-letter word and a single number. The single number
is 1%. The four-letter word is only, only 1%. And that is not an accurate way of describing
fees. First you ought to say first of all you’ve
got the money. So you already have your money. So it’s not 1% of your money. It’s 1% of something
else. Your manager, okay, he’s going to deliver investment results. Fine. What investment
results is a normal expectation, 7%, 8% maybe. Okay, let’s say 7%. What is the fee of 1%
of assets? What’s that same amount as a percent of returns? About 15%. 15% is a lot different
from 1%. You don’t use the word only with 15%. They say, Wait a minute. I remember in economics.
In economics we said everything was price comparative. So I know there’s a commodity
product called an index fund. And it’ll give me the full market return at no more than
the market level of risk, absolutely assured, reliable over and over and over again. So if go to active investing I better get
either a lower risk or a higher return. And what’s the fee is a fraction of that higher
return or lower risk. And there unfortunately the fee works out to be– incremental fee
for active over the fee for indexing turns out to be over 100%. There is no better way to identify which funds
will have the best future returns than low cost. And low fees is over and over and over
again the best predictor of better results. Even the head of Morning Star has explained
that they’ve done the research and come up with the best predictor of future performance
is low fees.