Short Pours is my short-format series of posts that will allow me to publish more frequently, and get a bit more creative with my content. Check out my introduction for more information on this series.
In this edition of Short Pours, I’m going to talk about the shittiness that some financial planners and investment houses inflict on us in the form of investment fees. I’ll also talk about my minute of fame for a stupid tweet on Twitter. Finally, I’ll round out the post with some links and some beer. Enjoy.
My wife is related to an actress who made some movies and won a few awards in her day. Upon her death, a trust was set up to distribute additional royalties from her estate to her descendants. I know what you’re thinking- am I really about to complain about my wife’s trust fund???
A few weeks ago, we got a letter in the mail including a prospectus for the mutual fund that the royalties are invested in. Of course I immediately flipped to the section on fees and commissions, because I had a feeling she was getting pooched. And guess what? I was right.
Not only does the fund charge a 2.61% expense ratio, it also has a 5.5% sales charge. Let me say that again: You have to pay the fund manager 5.5% of your investment before it’s even invested. Are you kidding me?
Mrs. BF didn’t understand my outrage that her aunt’s hard work was going right down the investment fee drain, so I had to demonstrate the thievery with numbers.
The following chart compares the performance of this fund (dubbed the DP Financial fund – I’ll let you figure out what ‘DP’ stands for) vs. investing the same amount in a low cost index fund (0.03% expense ratio).
Assumptions: $10,000 initial investment, 7% annual returns
Take a minute to digest that chart. Assuming the two funds had identical performance, the passive index fund investment would outperform DP financial by 33% in 10 years, 67% in 20 years, and 109% in 30 years! In other words, you would lose more than 50% of your gains to fees over the course of a 30 year investment.
Of course, the DP Financial fund is actively managed, so you’re paying those fees for the returns that come with active funds. So how has DP’s fund performed?
It has returned 2.74% annually since inception (2013). The S&P’s return over the same period? Between 13 and 14% annually. So not only are you paying out the ass for the actively managed fund, it is significantly underperforming its benchmark.
I’m currently trying to work with the trustees to get the account moved to a more passive, ‘fee-friendly’ set of assets. I’m not really concerned about my wife’s cut- the distributions will probably only be a few hundred dollars per year. It’s just a matter of principle.
A few weeks ago I said something stupid on Twitter. I repeated what I had overheard at a brewery that weekend. As of this post, it has over one million impressions.
Today I overheard someone say, “P as in pneumonia”— Brewing FIRE (@brewingfire) October 15, 2018
I’m not going to lie- of course I’ve thought about saying something on Twitter that gets a lot of attention (isn’t that what the platform is for?). I always imagined I would tweet something impactful and profound, that resonated with people on a deeper level. Well, so much for that.
A lot of commenters had fun with this, chiming in with their favorite. I like “G as in gnome”, personally. Many other people complained that I ripped this off from The Good Cop. I don’t know this show, but sorry?
Anyway, it was fun. I hope the next time it’s not something so pointless.
Here are a few good articles I’ve come across lately.
Waffles on Wednesday talks about Goals, Stoicism and Net Worth. Stoicism is a favorite philosophy of FIRE-seekers, because it centers around discipline and delayed gratification.
Mr. Tako talks about the benefits of having a big fat cash pile (which is HUGE). I’ve been talking about building a cash reserve a lot lately, so this really resonated with me.
Here’s a PSA on the Yield Curve from Fat Tailed and Happy. I know many of us don’t want to concern ourselves with economics and the details of investing, but it’s good to have a cursory understanding of economic cycles and how they can affect your investing.
Finally, here’s my Beer O’Clock Brewing Sessions interview over at The Flawed Consumer’s blog. Feel free to check it out if you want to learn more about my homebrewing habit.
Speaking of homebrewing.
Right now I’m drinking this Russian Imperial Stout that I brewed in March. The recipe was loosely based on Kate the Great (Portsmouth Brewery). I aged the beer on toasted French oak cubes (my barrels were occupied at the time), and have been waiting patiently for the last few months as the flavor mellows out.
I wasn’t a ‘stout guy’ in years past, but last winter I really came around to them. I’ve come to enjoy the combination of the roasty, chocolate character and the boozy kick from the 10+% ABV. Some of these stouts have a woody flavor from aging in oak or bourbon barrels, and others have a chocolately sweetness or coffee contribution. I can’t wait for Stout Season to enter full swing this year!
That’s it for the first of my Short Pours series. Feel free to join my various discussions in the comments section. Cheers!