On Allocating Assets

From the Blog "Pragmatic Capitalist". {Highlights are mine}

"Vanguard now manages $3 trillion in assets which is the same as the entirety of the hedge fund industry (see here for more).  This is fantastic news.  It means that low fees are winning.  When one considers that the S&P 500 generates just a 6.5% real, real return historically you have to be increasingly mindful of how much of that result is due to your fee structure.  When you’re paying 10, 20, 30% of your returns per year to a manager then you’re probably paying too much.  This is likely to be even more important going forward as bonds are likely to generate lower returns than we’re all used to so this means that high fees will cut into your returns even more than they used to.

It’s a wonderful time to be an asset allocator.  Products have never been more accessible at such a low cost.  You just have to make sure you’re being smart about your approach.  Know that even when you use low fee index funds you’re making an implicit forecast.  Know that you’re making active allocation choices.  Know that if you pay someone to do this on your behalf then you’re essentially paying for their ability to manage that allocation process for you.  The necessity of actively managing ones portfolio isn’t going away just because the fees are coming down.  So go into all of this with your eyes wide open and don’t assume that low fees necessarily lead to a better process."

*Long ETFs related to the S&P 500 in client and personal accounts although positions can change at any time.

Link:  Pragmatic Capitalist:  "Three Things I think I think."