9 Top Investment Ideas For Wealthy Investors

Comments

• MourningStars

  May 2015 edited May 2015

  Thanks for this and all articles, Ted. Guess I'm a little cranky this beautiful morn but not sure about owning low cost, broad based ETF's and then losing the savings to add on advisory fees. I do know Mr. Evensky gives a lot of interviews and makes a lot of appearances. Would like to see the math involved in the 15%-20% improvement in performance.
• MJG

  May 2015

  Hi Morningstars,
  
  Costs matter even more when portfolio expectations are lowered. Bogle has been playing this song for decades. Here' an example.
  
  Suppose a balanced portfolio expects a market return of 7.5% with expenses at 1.5 %. Your return is 6.0%.
  An option is to go the low cost route so that the return is the same, but costs are only 0.5%. Your take home payoff is now 7.0%.
  
  You have substantially increased your payday before taxes. Like 7.0/6.0 or roughly 1.167 or 17%.
  
  It's important to consider stats in both an absolute and a relative framework.
  
  I hope this helps.
  
  Best Regards.
• msf

  May 2015

  You have substantially increased your payday before taxes

  Some adjustments to the calculations above:
  - Evensky is talking about real (inflation adjusted) returns after taxes as well as after expenses
  - The typical (dollar-weighted average) cost of investments is closer to 1.0% than to 1.5% (from memory, cite corrections as appropriate)
  - Evensky is suggesting just a 0.5% absolute improvement in ER + taxes
  
  The general concept is right - that he's referring to relative improvement. That is, 0.5% could be as much as 15%-20% of the net, real, after-tax return. But all the figures, numerator (0.5%) and denominator (current net return) are smaller.
  
  I haven't yet delved too deeply into the following article from Thornburg, but if you're interested in getting a sense of "real" real returns (i.e. returns net of expenses, taxes, and inflation), and trying out your own numbers, here's an historical analysis on different asset classes.
  
  FWIW, Thornburg uses 0.50% as its estimate for average expenses, so if you like my figure (1.0%) or MJG's (1.5%), subtract off 0.5% or 1.0% from the stated average returns.
  http://www.thornburginvestments.com/pdfs/th1401.pdf
• MourningStars

  May 2015

  Thank you MJG and msf for the time and thought you put into your replies. I was unclear with the article in regard to the word fee/fees . I thought Mr. Evensky was trying to focus the writer on the 15-20% improvement on the portfolio return net of portfolio fees , taxes, and inflation. If a were a client , I would be considering my total return ( risk adjusted as Mr. Evensky advises ) which would include Mr. Evensky's approximate 1.33% fee, all in, as given by the writer. I was thinking, as I read , that the word fees as used by Mr. Evensky meant portfolio expense ratios/transaction costs but did not include his and Mr. Katz's 1.33% fee.
• Tampabay

  May 2015

  Advisors don't save (not their job) in Reality they COST.....
  They CAN Make you more money than you could on your own if you don't know what your doing,
  my car mechanic saves me aggravation over me doing the work, but he costs...