A few days ago I spoke to a finance professor at Columbia University here in New York City who has been doing a deep dive on the financial management industry.
His results were pretty concerning.
One of the things that he said was that fund management fees have been dramatically declining over the past few years.
At face value this sounds like a good thing.
All mutual funds and ETFs charge fees, usually a percentage of the assets that they’re managing.
For example, the Vanguard 500 Index Fund is a mutual fund that essentially owns all the companies in the S&P 500 index.
This fund is not ‘actively managed’, i.e. there are no stock-pickers deciding which companies to buy.
Instead, the fund managers simply acquire shares of the 500 largest companies in America, irrespective of those companies’ prices, valuations, or prospects.
This is known as passive (index) investing.
This post was published at Sovereign Man on May 9, 2017.