What Do Rescue Dogs and Mutual Funds Have in Common?
Another Thanksgiving was successfully “in the books” as the lovely Emily and I headed back home after a week at the Outer Banks. This was our second Thanksgiving as a married couple and we were expecting a bouncing baby boy in March!
If you have ever traveled home on the Sunday after Thanksgiving, you know it is one of the worst travel days of the year. We had learned our lesson the previous year, so this year we set our sights on leaving early so we could beat the traffic and arrive home around lunchtime.
Smooth sailing and we made it through Richmond with no trouble. Yes! Time to stop for a break and get a cold beverage.
But a great surprise awaited us at the gas station. As soon as we opened the car door, the cutest beagle puppy pranced our way. As we gazed down at her, we knew right away that she had never enjoyed the luxury of a warm bath, and probably had never settled down into a comfortable lap.
But she was not alone. A gentleman followed closely behind. He looked as if he could also benefit from love and attention, only he was not as cute or as cuddly as the young pup.
Love at first sight: Sweet Emily‘s beautiful blue eyes widened and she knelt down over the pup.
"You can have her if you want her," our new transient friend declared matter-of-factly. We smiled skeptically at him as we walked into the convenience store to grab our drinks.
Returning to our car I could sense my wife’s big blue eyes staring me down even before I turned the key. “I am sure we could find a good home for her.” We both knew the address of the home she was talking about, because the GPS was already programmed to take us there.
My mind spun with thoughts. "How can we take on another dog when we already have a puppy at home and a baby on the way? On top of that, we have a new home and a growing business to manage." We did not want to take on too much, but then again, every dog deserves a good home.
Despite the early morning hour, I was wise enough to know there was no sense in talking much more about it. Some battles you choose not to fight. Emily's big blue eyes were set on a pair of tiny, floppy ears.
Now that we are emotionally committed, my mind shifted to the transaction details. Can such an awesome dog really be free? So I rolled down the window, waved down the puppy’s current guardian and asked, "Excuse me, sir. Were you serious when you said that we could have your dog?”
“What do you think pup-pup? Do you want to go with them?” Right away he answered his own question and replied, “I don’t know. I think I’m pretty fond of her and am going to keep her.”
Suddenly, he experienced a newfound affection towards the cuddly beast. All three of us now understood the stock in his four-legged friend was rising. I should have given him more credit. It looked like our new acquaintance had studied a little economics in the School of Hard Knocks. Now that there was interest in his dog, the price is going up.
One thing was clear: "Pup-pup" simply could not spend another night covered in ticks and out in the cold. We had to find a way to bring her home with us. We had fallen in love and we had to fight for our new friend.
We went straight to our wallets to see how much cash we had with us.
Our eagerness suddenly turned to disbelief. Only a few George Washingtons?!?!? The year was 2004, but even then we had long since transitioned to plastic and rarely held paper currency. We panicked. Wait…maybe we have some change or additional cash in the glove compartment? Miraculously, after scrounging through the car we were able to come up with just over FOUR DOLLARS.
I was cautiously optimistic as I rolled the window down again. “Excuse me again, sir. Will you take four dollars for your puppy? It’s all we have."
His loyalties to the pup must not have been so deep after all. He gladly handed her over to us and we zoomed home safely ahead of all of the imminent traffic.
Only a few hours later, the dozens of ticks were plucked from the puppy’s dirty fur and she was settled into warm, soapy water in the kitchen sink.
This is the story of how we expanded our family with our new dog Tilley. In the last 16 years she has given us so many great moments. Clearly, we got way more than we paid for from our four dollar investment.
So what does any of this have to do with investing?
Some “experts” may have you believe that more expensive funds are likely to perform better than much less-expensive funds. This belief is simply not true. In fact, overwhelming data suggests that low-cost investments tend to outperform investments with higher fees.*
Some investment managers may proclaim: “While the expenses may be higher than average, you get what you pay for.” This adage is true in many areas of our lives, such as the time I hired a contractor to help with home renovations. (Also, never buy cheap camping gear or even ketchup, in my opinion.) But the “get what you pay for” argument does not hold water in the realm of mutual funds and ETFs, and is often used as a rebuttal from someone attempting to justify charging you more.
In financial planning, the fees for your investments should be very low. There’s a direct correlation between high expense funds and under performance. This fact is undeniable and well documented, so pay very close attention to these fees to make sure you are not paying too much.*
Also, be careful to differentiate between the fees you’re paying your advisor and the fees that are part of the underlying funds. A good advisor should be able to communicate clearly how he or she is compensated and the “all-in” fees you pay.
Can your advisor provide you with:
-A comprehensive written financial plan?
-Notifications of tax strategies?
-Coaching on proper investor behavior?
-Help to implement it all?
If so, your advisor is quite likely well worth the fees you are paying. Paying fees for good advice is often easily justifiable.
OR does your advisor just “manage your portfolio” and meet with you once a year to review it and make changes? If so, perhaps you should more closely examine the fees you are paying and determine whether you are receiving fair value for the services provided to you.
Investment fees are necessary and unavoidable, but there are some fees you should pay, and some you should not. Don’t be afraid to do research and ask open, honest questions. You deserve to know these answers.
But beware: Not all low-cost investments are good, just as not all rescue dogs are suited for your home. Both need diligent care and attention. Whether you are welcoming a fund into your portfolio or a new dog into your home, you should gain as much information as possible to decide how it might fit into your future. (Thankfully, Tilley worked out great for us, in spite of the lack of information!)
Do you know how much you are paying for your investments?
If not, you should--and we can tell you in as little as 10 minutes. Click here to find out if you are paying too much.
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*https://www.nerdwallet.com/article/investing/index-funds-vs-mutual-funds
**https://www.wsj.com/articles/double-whammy-high-fee-mutual-funds-do-worse-11546630477