The late, great John Bogle put it best, and simplest, when he said, “Fees matter.”
We take those words seriously at Rebalance. We should, since several members of our all-star Investment Committee are longtime colleagues of the Vanguard Group founder.
One is Burton Malkiel, Princeton professor and author the investing classic A Random Walk Down Wall Street. Another is Charley Ellis, himself a celebrated investment author and former chairman of the Yale University endowment. Both sat on the Vanguard Group board.
It was Ellis who pointed out, at a recent Rebalance Investment Committee meeting in NYC, that the investing costs of the funds that we use for our clients have dropped significantly since early 2013.
The decline in fees has been dramatic. The weighted average fund-level fee in our most popular portfolio, the Rebalance Diversified Growth Portfolio, dropped from 0.17% per year in 2013 all the way down to 0.12% per year currently. This means that for every $100 of client savings invested via this Rebalance portfolio, our clients will be charged fund-level fees of only 12 cents per year!
On average, over the past 6 years, the cost of owning Rebalance investment portfolios has fallen by over 24%!
Falling Investing Costs
| 2013 Fee | 2019 Fee | Change in % | |
| Income | 0.33% | 0.27% | -18.2% |
| Diversified Income | 0.28% | 0.23% | -17.9% |
| Balanced Income | 0.24% | 0.19% | -20.8% |
| Balanced Growth | 0.20% | 0.16% | -20.0% |
| Diversified Growth | 0.17% | 0.12% | -29.4% |
| Growth | 0.13% | 0.08% | -38.5% |
| Average Fee Decline | -24.3% |
What’s a basis point or two, you might ask? A lot, as the third member of our Investment Committee, Jay Vivian, will attest.
Back when he managed the IBM Retirement Funds, Jay famously illustrated the effect of shaving off basis points in terms of the number of months an IBM employee could retire earlier than planned. Freedom is a powerful incentive.
The great thing about falling investment costs is that they tend to stay low, and fall even further, as competition heats up. Yet the job of the Rebalance Investment Committee is about more than just costs. They constantly review the marketplace of index-style exchange-traded funds, looking for even the slimmest of performance improvements.
For instance, while fees matter, so does trading liquidity. When a fund is large and highly traded, one tends to get the price that you expect when buying and selling in order to rebalance. A less-liquid fund might have a suddenly wide gap in the “bid-ask” spread, creating unnecessary friction and cost in a portfolio.
investing costs focus
The Rebalance Investment Committee also looks for funds that represent the most strategically valuable indexes for our investors.
In a time of low interest rates, for instance, we have sought income in places other than just U.S. government bonds. All three members of the Rebalance Investment Committee have put a lot of time and gray matter into this particular investing conundrum.
Foreign stocks, too, are more difficult to evaluate than domestic equities, for all kinds of reasons- currency fluctuations, global economics and the quality of investor information, to name just three.
The Rebalance Investment Committee bring decades of institutional investing experience to these issues. The result is the selection of high-quality retirement investment portfolios that we deliver to Rebalance clients.
It is the best of all possible investment worlds. Decades of proven, respected experience at a rock-bottom cost. Add to that falling fixed investment costs, and you have a real contender when it comes to creating a powerful retirement plan that works for you.
