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Mebane Faber on The Importance of Cutting Fees

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    Emma Walsh

    From Chris Hunter’s B&P Briefing, Monday, March 23:

    In an environment where stock market valuations are stretched and global growth is weak, it’s important you squeeze as much net profits from your portfolio as possible. That’s why it’s so important that you take a scalpel to your fees.
    For more on the importance of cutting your fees, last week I caught up with one of the world’s leading pioneers of low-cost investing, Mebane Faber of Cambria Investment Management.

    As we reported here, Faber recently studied how a bunch of different popular asset allocations performed from 1973 to 2013. What he discovered was that if you took the best performing asset allocation and layered on the average annual fee for a financial adviser in the US of 1%… and then layered on the average mutual fund fee of 1.25%… it would become worse than the worst performing allocation in terms of net returns.

    In other words, dealing with your fees is even more important than the next most important step for investors – deciding your asset allocation.
    Faber doesn’t recommend getting rid of your financial adviser. But if you pay for one, Faber says you should make sure you’re getting your money’s worth on the tax side, the estate planning. Paying someone like Fidelity 1.5% of your portfolio in fees simply to set your asset allocations is a big mistake.

    The other easy win, according to Faber, is to choose ultra-low-cost exchange-traded funds (ETF) over pricier mutual funds. These can carry fees as low as 0.07%. A great place to start is the range of low-fee funds from Vanguard. You should also consider a broker – for example, Schwab – that offers commission-free trading.”

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