Cashtoons

Watch out for Fees

May 28, 2021

We covered how investing in index funds and going with the flow of the market can make you money.

kelp

Even if you never fly above the waves of the market. The whole economy grows over time, slowly but steadily. You can make money by investing in this growth so long as you can ride out the downs, and you have the time.

kelp

Okay, so it is very hard to choose only winners, but it is possible, right? Aren’t there smart people out there who like this kind of thing? Why not have them manage your portfolio, so you can fly above the waves, do even better than the market?

bird flying

This might be a good way to go!

bird flying

But… watch out, because those brains come with fees.

bird flying with weights

This means that actively managed funds, (investments where people do the thinking, buying and selling), MUST do better than the market to make you the same amount of money as an index fund. You would think, the worst that happens is that you do at least as well as the market.

bird sitting on water

But, if managed funds do no better than the market, the fees will pull down your profits, so you don’t see those gains.

bird underwater with weights

The thing to remember is: Watch out for fees!

bird falling

Make sure your managed accounts do well enough to pay you when you’re all done paying the stock traders.

Sources

sources

See April 2nd, 2021 post for a refresher on index funds.

https://en.wikipedia.org/wiki/Warren_Buffett

https://www.getrichslowly.org/history-of-index-funds/#:~:text=On%2031%20December%201975%2C%20paperwork,public%20index%20fund%20was%20launched.

The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)

Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor

https://www.investopedia.com/ask/answers/042715/what-difference-between-speculation-and-gambling.asp#:~:text=Speculation%20and%20gambling%20are%20two,conditions%20of%20risk%20or%20uncertainty.&text=Gambling%20refers%20to%20wagering%20money,risk%20in%20an%20uncertain%20outcome.


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