In past letters, we have talked about reversion to the mean. In recent months, we are experiencing it. We are benefitting from the rebalancing we have done to buy more of the asset classes when they were cheaper over the previous months and years. Emerging Market returns were twice those of the US over the last quarter as Greece produced a “come from behind” return of over 34% for the quarter1. It wasn’t that long ago that many media stories were focusing on the likelihood of Greece’s solvency. Although the US (Russell 3000) returned a respectable 3.02% for the quarter, it ranked just 21st of 23 Developed Markets around the world (in dollar terms) as Austria, Denmark, Finland and New Zealand all produced double digit positive returns for the quarter. It pays to remember that it is a big world out there and our broad-based approach captures the returns around the world as they happen without us having to make predictions.
Costs matter: One of the areas of investing over which we have some control is the expenses we pay. Trading incurs costs – both the commissions we see from brokerage firms like Schwab as well as the more opaque difference between quotes to buy and sell that dealers charge for making a market in securities. We strive to reduce transaction costs by trading judiciously. Also, due to our “wholesale” size, we pay lower transaction costs and our “institutional only” funds charge lower management expenses than what is paid by “retail” investors.
| Security Type | Old Cost | New Cost | Percent Change | |
| Stocks & ETFs | $8.95 | $4.95 | – 44.7% | |
| Mutual Funds | $25 to $35 | $20.00 | – 20.0% to -42.9% | |
One of the more noticeable areas in which brokerage firms differentiate themselves is the price to trade stocks. Competition has brought stock and Exchange Traded Fund (ETF) trading commissions down recently to $4.95 and we now trade at that level. We also have negotiated to lower our mutual fund trading costs from a range of $25 to $35 (depending on the size of the trade) to a flat $20. Lower costs increase our net returns as investors.
As always, we are happy to discuss this or other aspects of your financial or investment plan with you at your convenience.
