By Brad Sherman via Iris.xyz
“The grim irony of investing is that we investors as a group not only don’t get what we pay for, we get precisely what we don’t pay for.” – Jack Bogle
As an ode to Jack Bogle, the pioneer of low-cost investing who recently passed away, we’d like to take this time to talk about the true cost of your portfolio.
I think the phrase “it takes money to make money” is something that a large majority of the population would agree on. In fact, I think you could argue that every investment has a cost, even if you don’t realize you’re paying it. Of course, there are many different kinds of costs, but they all have one thing in common: if the money is not going back into your pocket, it’s going into someone else’s pocket.
Most will scoff at the costs of their investments. Why? Usually because they are viewed in terms of percentages, and a 1-2% fee just doesn’t feel that big in the grand scheme of life. On top that, we don’t “pay” for investing the way you pay for other products. There’s no physical card or cash you are handing to a cashier at a store. This circumstance, believe it or not, allows our brains to bypass the mental hurdle of spending money, and the thoughts you have when you purchase something more materialistic, like jeans or a car. The “costs” to investing are mostly taken of your total capital via a quarterly fee (like an advisor) and/or through the fund itself.
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