Sure, fees are a factor in an investment portfolio, but they are not the only one to keep in mind when it comes to reaching your retirement goal.
Marketing campaigns about “retiring 30% richer” that focus entirely on fees can lead us to overlook the impact of these other factors that determine ultimate investment success.
In the end, the most important measure of a portfolio’s success is the overall investment outcome. Thinking that the only way to “retire richer” is through lower fees may prove to be an overly simplified approach.
The fee-only focus does not take into account that returns aren’t linear or equal across portfolios. Taking a fee difference and multiplying it out over a number of years is not a realistic comparison of what actually happens between two investments. This approach makes the assumption that first, all investments return the same, therefore the only variable is fees, and second, all investors are looking for the same characteristics in their portfolio, and fee levels are the only measure of the appropriateness of the portfolio.
Lower is not always better for all investors. Investor “A” might want an actively managed, widely diversified portfolio that allows for some market exposure but with a greater emphasis on capital protection in the event of a downturn. Investor B might want market exposure first and foremost. These two investors should be in significantly different products and portfolios, and neither should just be shopping for the lowest fee as the one and only decision-making factor.
It pays to look for a portfolio or product that fits you best considering all the factors, with fees being one part of that. Other variables such as downside protection, volatility, estate planning benefits, and tax efficiency could be key priorities in your decision, and override saving a few basis points on fees.
Sometimes one of the key determinants of our success as investors is our own behaviour. When we react to market swings at the worst possible time, it can cause long-term damage to our portfolios. Withdrawing or moving to the sidelines while markets take a decline, or selling low, then waiting too long to get back in the market once recovery begins, or buying high, have been demonstrated to have major impacts on long-term success. The goal is to work together from the beginning to select products that fit your risk tolerance, so that you are comfortable with a level of volatility that helps you ride the ups and downs with confidence.
Cost only becomes an issue when there’s an absence of value.
Many investors are looking for a planning component outside product selection and portfolio recommendations when it comes to their retirement success. A holistic view of the individual financial situation and help with navigating the various planning options, registered plans, insurance strategies, and more, can help contribute to that success.
Proper planning, and properly sourcing appropriate products that have features that match your goals, then access to ongoing support and advice to help stay on track, should lead to measurable and sustainable value that’s well-earned from your point of view.