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Tying It Together

There are four themes on this website.  Investing is a zero-sum game around the market return pre-cost, cost matters, financial planning is not difficult after learning a few basic concepts, and financial products exist that eliminate the need for investment expertise for a do-it-yourself financial advisor. 

I hope that I've shown that it is difficult for the active manager to add value.  Adding value means the active manager outperforms the market return consistently over the long-term after-cost.  It is certain, when measured correctly, that investing is a positive sum game but a zero sum game around the market return before cost.  Any outperformance is offset by underperformance around the market return.  Cost shifts the investor return spectrum toward underperformance by the amount of the cost. 


From this follows that cost matters and matters greatly.  A 15 basis point cost factor is better than a 100 basis point cost factor which is better than a 200 basis point cost factor.  Everything else being the same, the lower the cost the better.  Broad market, passively managed products exist that cost under 15 basis points.  However, no advisor can recommend these and earn a living.  To lower your cost you must be your own financial advisor.  Your investment return will be the market return less a low cost factor.

Can you do this?  It will take some time and a little effort but I believe I've shown that financial planning is not difficult.  If you have a basic understanding of net worth, cash flow, our tax system and the three accounts, and protection, you have adequate knowledge to at least start.

Should you do this?  Consider my roofing example.  It costs between $5,000 and $10,000 to re-shingle a roof.  I don't know anyone who has done this on their own.  They hire a roofing company.  What if the cost rose to $50,000?  Most would figure out how to do it themselves.  At $5,000 they hire someone, at $50,000 it is too expensive to hire someone.  

The cost of a financial advisor over a lifetime is enormous.  Again, here is the affect of a 2 percentage point cost factor difference.  And, I assure you, it simply is not difficult to be your own financial advisor.  The necessity to acquire investment expertise was the barrier to be your own financial advisor.  Everything else was quickly learnable.  Low-cost, broad-market, index funds eliminate the need for investment expertise.

Next Step

Determine your cost factor.  This helps.  Decide whether it is too high.  


If unhappy with your cost factor, Be Your Own Financial Advisor and recover the portfolio growth lost to excessive cost by investing in low-cost, passively managed, exchange traded funds such as those presented on the next page.

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