investment costs

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CountHigh
Posts: 12
Joined: Mon Feb 19, 2018 4:13 pm

investment costs

Post by CountHigh »

I am trying to figure out my future investment allocation and wanted to check whether I am keeping my investment costs reasonably low. I haven't decided my desired allocation yet, but I am exploring my options and their costs. Do they seem ok, and is there perhaps an earlier thread about investment costs?

Via my asset manager company, I have access to following instruments (all passive index funds) among others:

Total US market (stocks): 0,42% annual fee
Total Europe market (stocks): 0,42% annual fee
Small cap value US (stocks): 0,95% annual fee, but requires 20.000€ to start with
Small cap value Europe (stocks): 1,10% annual fee, but requires 20.000€ to start with
Bonds (corporate and/or governmental, Europe): 0,30% annual fee

Gold: No access. I could, however, open an investment account in my bank and buy ETFs. My bank's cost structure, however, is so complex that I would need a separate spreadsheet for it... Not very inviting and smells expensive. At the moment I don't feel like picking individual stocks, so I would need an investment account only for gold... Holding gold under my mattress sounds like a bad idea also, so I am considering replacing gold with other alternatives (plot of land, piece of forest, etc., being a landlord is probably not for me).

By the way, my current allocation is: cash 72%, bonds 17%, and 11% in stock market. Something needs to be done...

2Birds1Stone
Posts: 1121
Joined: Thu Nov 19, 2015 11:20 am
Location: Earth

Re: investment costs

Post by 2Birds1Stone »

The Total US and Total Europe look reasonable, although by USA Vanguard/Fidelity standards they are a bit high (I pay <.1% for these both in personal and institutional shares).

The small cap fee is very high.

I would move money into the first two, if you are afraid the market is overvalued you can DCA into the investments, but 72% bonds is VERY high and still subject to interest rate risk.

Look up the idea of an Investment Policy Statement, figure out your risk tolerance, goals, and then learn and implement.

RealPerson
Posts: 834
Joined: Thu Nov 22, 2012 4:33 pm

Re: investment costs

Post by RealPerson »

2Birds1Stone wrote:
Thu Apr 05, 2018 12:34 pm
72% bonds is VERY high and still subject to interest rate risk.
I believe the OP is 72% in cash. This is probably the worst possible place to keep your money. I am not so sure about gold. I believe that any investment must be purchased to generate some type of cash flow. Gold is simply waiting for someone to pay more for it than you did. Depending on how the market turns out, you may be stuck with a piece of metal that returns nothing for decades and costs you money to store. Always remember the positive cash flow and keeping expenses low. Maybe that is typical for Europe, but all those expenses seem high to me. Are there no other options?

DutchGirl
Posts: 1258
Joined: Tue Sep 06, 2011 1:49 pm
Location: The Netherlands

Re: investment costs

Post by DutchGirl »

In the Netherlands, where I live, you should be able to find funds with slightly lower fees than these. The company iShares may have ETFs with lower fees than what you're paying, and possibly you can also find cheaper options with the investment institution DeGiro (active in some EU-countries).

I'm also not sure whether you've looked at your bank's or investment institution's fee as well? There's a TER of a fund, but a lot of institutions ask an annual maintenance fee on top of that. Good to be aware of that as well, and choose a bank/investment institution with low(er) costs.

I would also think about your preferred portfolio or your asset allocation. Could be for example:

1. 5.000 euros in a savings account as an emergency fund.
2. Perhaps another savings account for targeted savings - like say 3 years from now you want to have 5.000 for your next second-hand car, then you might already start putting some money away in a savings account specifically for that.
2. Anything above that should go to investments, and for example of that money (however little or much it is) you want 35% in total US stocks, 35% in European stocks, 20% in European bonds and 10% cash.

CountHigh
Posts: 12
Joined: Mon Feb 19, 2018 4:13 pm

Re: investment costs

Post by CountHigh »

Thanks for the much needed reality check. I kind of expected that these costs are high and your feedback seems to verify it. I took yet another look and found a couple of good alternatives (including DeGiro, thanks for the tip DutchGirl).

I recently sold my apartment which explains my current cash (72%) situation. Before I sold my apartment I concentrated on killing my mortgage and didn't really do any other investment decisions. Simple times for a simple kind of man... Now I am educating myself on cons and pros of different portfolios. I read The Permanent Portfolio by Rowland and Lawson, found portfoliocharts.com and spent several nights reading useful discussions on this forum. The jury is still out.

@RealPerson: I agree with you on cash flow and have some other doubts about gold as well. But I also might be willing to sacrifice a part of the cash flow for an insurance against bad weather. Perhaps it tells something about my risk attitude.

Tyler9000
Posts: 1684
Joined: Fri Jun 01, 2012 11:45 pm

Re: investment costs

Post by Tyler9000 »

@CountHigh -- yeah, those ERs aren't great but they're also not completely out of line with typical 401k options in the US. At some point you just have to do the best you can with your available options.

Given your difficulties with buying a gold fund, I might suggest that you revisit your objection to purchasing physical gold. You don't have to literally keep it under the mattress. A safe deposit box is a popular option, and allocated gold storage is also available from reputable sources around the world. BTW, I personally don't have the same hangup that others do on gold not generating a cash flow, as the same can be said for any non-dividend-paying stock. And gold has been around way longer than Berkshire Hathaway -- I'm pretty sure it will outlast Buffett as well. ;)

Also, noting your comments on the account minimums for certain funds I'm going to assume you're not talking about a massive amount of investments just yet. In that case, you might also think of your next purchase as acquiring the most important next chess piece rather than worrying too much about buying the entire set up front. So maybe a broad US or Europe stock fund would be the logical first step in a long-term plan.

CountHigh
Posts: 12
Joined: Mon Feb 19, 2018 4:13 pm

Re: investment costs

Post by CountHigh »

Alright, a year went by... But I did find cheaper chess pieces, which should save me .1%-.3% each year in comparison to the first alternatives. And I found gold as well, which is nothing to brag about. Markets for gold have been around for a few thousand years (even longer than Buffett has...), so I was far behind the rest of the humanity.

I am implementing a Permanent (European) Portfolio, which is meant to do well also in Eurozone inflation. Well, one buys gold for that, does one? 25% right? ETFs are an easy option, are they not? Click, click. But wait a minute! The base currency for these ETFs is U.S. dollar. Well, these ETFs protect the portfolio against Eurozone inflation only if the U.S.
dollar inflates as much as Eurozone does. This may or may not happen. As I haven't found a gold ETF with euro as a base currency, acquiring the physical gold is my "last" admin problem. Other types of problems are likely to follow (and are warmly welcome).

Forskaren
Posts: 187
Joined: Sat Nov 07, 2015 4:04 pm

Re: investment costs

Post by Forskaren »

What is the cost for a global index fund? Could that replace some of the other funds?

The fund I use in Sweden has the annual total cost of 0.11%.

CountHigh
Posts: 12
Joined: Mon Feb 19, 2018 4:13 pm

Re: investment costs

Post by CountHigh »

I am not using global index funds or ETFs at the moment, but I have e.g. iShares MSCI EMU UCITS ETF, which costs 0.12% annually. On top of that comes my bank's annual (management) fee 0.10%, so for owning this ETF I pay total 0.22%.To be honest I still hold some stock funds which have total annual cost between 0.34-0.59%.

For bonds I have ETFs e.g. DBX II IBX SOV EUROZ 25+ (total annual cost 0.25%) and iShares € Govt Bond 7-10yr (total annual cost 0.30%), but also a bond fund (total annual cost 0.27%).

For gold ETFs I went with ETFS Physical Swiss Gold (total annual cost 0.35%, still including the fee of my bank) and db Physical Gold ETC (total annual cost 0.55%). But as said earlier, in the future it should be direct physical ownership of gold. But these ETFs may be an easy way to adjust the portfolio.

All in all I am in the beginning and have perhaps 5x yearly expenses saved. Hoping to be soon ready in building the portfolio and just occasionally readjust it.

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