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Gabriel Lalonde
January 05th, 2022

There Is More to Investment Portfolios Than the Fees

We cannot separate investment portfolios and the associated fees. But aren’t you missing other equally important factors that affect your retirement goal?

It is not entirely your fault. Unfortunately, we are unconsciously drawn into the “retiring 30% richer,” thanks to the strategic marketing gimmicks of these companies. But do not get carried away; other factors contribute to the success of your investment.

In investments, it is all about the output. You can only say your investment is successful if and when you reach the desired outcome. And prioritizing only “lower fees” might just make it harder to achieve this goal.

Fee-Only Approach

Adopting the fee-only approach blinds you to the fact that returns are not equal or linear across portfolios. You cannot get a clear picture of what happens between two investments by multiplying the fee difference out over a number of years.

Doing that gives you the wrong notion that all investments have the same returns, making the fees the only variable. It also leads to another false assumption that all investors prioritize the same features in their portfolio; therefore, the only way to measure the appropriateness of the portfolio is to use fee levels.

A lower fee is not the most suitable for all investors. For instance, if Investor X favors an actively managed, extensively diversified portfolio that offers considerable market exposure while prioritizing capital protection against unexpected market shake-ups. Conversely, Investor Y might prioritize market exposure over capital protection and everything else. Both investors should put their money into different products and have dissimilar portfolios.

In either case, none of these investors should base their investment decisions solely on the fees. Instead, they can opt for a portfolio or product that factors all the major variables, including the fees. These other variables, including tax efficiency, estate planning benefits, volatility, and downside protection, often influence investment decisions more than the fees.

The investor’s behavior determines the outcome of any investment journey in some cases. For example, a panic reaction to a market swing can leave long-term adverse effects on your portfolio. Selling low, withdrawing, or moving out of positions in the event of a decline will considerably affect your success in the long run. Similarly, buying high or missing the right entry point can have similar impacts.

The best move is to do ditch the fee-only approach, do extensive work from scratch and choose the best products according to your risk tolerance. That way, you can set a comfortable level of volatility that keeps you in the game during market ups and downs.

Cost becomes relevant when there is no value

Many investors want a planning component – other than product selection and portfolio recommendation – that ensures their retirement success. That is achievable if they can effectively assess their financial situation and understand the different planning options, insurance strategies, and registered plans available to them.

The essential ingredients of a successful investment portfolio include products that resonate with your investment goals and continuous advice and support from experts to stay on track. With these, you can record some sustainable and well-deserved value.

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