Skip to main content

Sound Advice: November 2, 2022

The investment times they are a’changing.

Turn the clock back to the 1950s and 1960s and you’ll be back in a time when stockbrokers were the gatekeepers of the investment markets for most investors.  Those were the early days of stocks and bonds, customers’ men who got one or more shoeshines daily, and commissions for individual stock trades were $100 or more.  Mutual funds were still a new concept.  Exchange-traded funds, largely a new millennium addition to the roster of investment vehicles, barely existed.

In May, 1975, things changed dramatically.  That’s when President Gerald Ford signed the Securities Acts amendments, which started the process of commission discounting.  Now, nearly half a century later, commissions are down to zero at most broker-dealers.

Back in those early days, mutual funds were quite costly.  The entry fee for new investments, known as a load, a.k.a. sales charge, was 8%.  So when you invested $1,000, you had an immediate loss of $80.  These days, many, if not most, mutual funds are available on a no-load basis and you begin with an investment that’s worth what you paid for it.

Another concept of note was wrap accounts, which began in the late 1990s.  Those were packaged advisory accounts that included investment manager services and brokerage commissions, a combination that proved quite appealing for people seeking ongoing professional assistance.  Initially, the cost of these accounts was a hefty 3% of asset value annually, which dropped substantially in the period that followed.  Currently, the fee for wrap accounts is in the range of 1.25% to 1.5%.

The last few years have seen the rise of robo accounts, which place the tasks of management and trading under the control of computer models.  What’s typically seen as good news is the very low fee structure, which may well be in the range of 0.20% to 0.40% per year.  The other side of the picture is discouraging.  Although the investments are intended to be properly diversified, the net result of these machinations will probably be no better than what would be available through do-it-yourself efforts spread among a few total stock and bond market funds.  In addition, some robos invest in homegrown funds from which they reap fees and there is often a significant portion held in cash, so not all of your funds are working for you.

One more thing: There’s no personal interaction.  It’s just you and the computer.  Not very comforting.     

N. Russell Wayne, CFPÒ

www.soundasset.com

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: January 15, 2025

Why investors shouldn't pay attention to Wall Street forecasts   Investors shouldn't pay attention to Wall Street forecasts for several compelling reasons: Poor accuracy Wall Street forecasts have a terrible track record of accuracy. Studies show that their predictions are often no better than random chance, with accuracy rates as low as 47%   Some prominent analysts even perform worse, with accuracy ratings as low as 35% Consistent overestimation Analysts consistently overestimate earnings growth, predicting 10-12%                 annual growth when the reality is closer to 6%.   This overoptimism can                 lead investors to make overly aggressive bets in the market. Inability to predict unpredictable events The stock market is influenced by numerous unpredictable factors, including geopolitical events, technological changes, and company-specific news.   Anal...
Post a Comment
Read more

Sound Advice: July 16, 2025

Fixed annuities are poor investments Fixed annuities are often criticized as poor investments for several reasons, despite their reputation for providing stable, predictable income.  Here are the key drawbacks and concerns:   High Fees and Commissions Internal Fees:  Fixed annuities can carry a range of fees, including administrative charges, mortality expense risk fees, and rider fees. These can add up to 2%–4% per year, significantly eroding returns over time. Commissions:  Sales agents and financial advisors often receive high commissions for selling annuities—sometimes as much as 5%–8% of the invested amount. This creates a financial incentive for advisers to recommend them, even when they may not be the best fit for the client. Comparison to Other Investments:  Mutual funds and ETFs typically have much lower fees and commissions, making them more cost-effective for long-term growth. Limited Growth a...
Post a Comment
Read more