Navigating the Investment Landscape: Affordable Guidance for Smart Investors

Investing can be complex, but adopting a strategy that prioritizes simplicity and affordability can be effective for many investors. This article discusses the advantages of low-cost investment guidance for today’s investors.‍

Keep Investment Fees Low

Smart investors understand that investment fees and expenses can erode your savings and compromise your future retirement. You have to pay attention to both transaction fees and ongoing fees. According to the SEC, ‘These fees may seem small, but over time they can have a major impact on your investment portfolio’. 

Transaction fees are charged at the time you buy or sell an investment.  These fees, like others, reduce the amount of your investment portfolio. Think of them as the friction or drag that can hinder your portfolio’s earning potential. 

Ongoing fees are even more harmful. These fees are often expressed as a percentage of your assets under management, such as 1% of your total assets. On the surface, they might not seem like much, but over the long haul, they accumulate into significant losses. Each year, your investment balance takes a hit to cover these fees, and what's worse, you also forfeit the potential returns that money could have generated if it had remained invested in your account. 

Consider this example. The SEC chart below illustrates an investment portfolio earning a 4% return over a 20-year period. Take note how different fees of 0.25%, 0.50%, and 1% impact the portfolio's performance over two decades.

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Over 20 years, a 1% annual fee reduced your portfolio by nearly $30,000, which represents 27% of your portfolio’s total growth. It becomes easy to see the harsh effects of compounding costs on your portfolio.

Prioritize a Simple Investment Portfolio

Successful investors follow an investment strategy that is simple and easy-to-understand by design. A simple strategy allows you to know exactly what you’re invested in and what investments are driving your investment returns. A straightforward approach like this makes it easier to manage your emotions when the market is volatile. 

However, many investors have complex portfolios. This unnecessary complexity often stems from a misguided attempt to justify higher fees charged by financial advisors. A portfolio filled with a multitude of investment products does not necessarily mean better investment returns. 

Given today’s investment landscape, investors can achieve sufficient diversification and a reliable return with only one or two mutual funds or ETFs. 

Simplifying your investment portfolio helps you better understand what you're invested in, making it easier to make smart decisions and ride out market swings without stressing too much. When you really understand how your investments are doing and where your returns are coming from, you can feel more confident and keep your emotions in check along the way.

Be a Disciplined Investor

Discipline, along with simplicity and affordability, is an important part of successful investing. Emotions, like fear and greed, can lead to impulsive decisions that can harm your long-term financial goals, especially during periods of market volatility. Research has shown that emotional decisions can lead to frequent mistimed buying and selling of investments, which is detrimental to portfolio growth over time. 

A study conducted by Dalbar Inc., as reported by Morningstar, found that over a 20-year period, the average stock fund investor significantly under-performed the S&P 500 due to emotional buying and selling. 

It is wise to stay disciplined and avoid letting emotions dictate your investment decisions. Having a financial advisor, who can act as a supportive soundboard to help safeguard you from making an emotional decision is a tremendous value add. 

Low Cost Investment Guidance

The benefits of a simple, affordable, and disciplined approach to investing cannot be understated. Applying the principles of low cost investment guidance can lead investors down the path of success. 

At Sensible, we prioritize affordable and simple investment strategies to improve the client investing experience and help our clients achieve their long-term financial goals. 

Reach out to us today to learn if our high value, low cost approach is a fit for you. 

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This blog article is for informational and educational purposes only.
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Sources: 

SEC.gov
Investopedia
Morningstar - Mind the Gap 2021

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