Broker Check

To pay or not to pay, that is the question!

| July 25, 2016
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A client recently commented, “I heard that minimizing the expenses of my investment portfolio is one of the most important parts of investing.” 

My response was, “you have been the victim of unbelievably effective advertising!" After all, we are a sales-driven economy. The fact that my client could repeat the marketing slogans of various firms means only one thing - those companies are very good at getting their message across.  

While it’s important to take price into account in any purchase decision, it probably shouldn’t be the starting point for most products and services. And for most families, price shouldn’t be the starting point for their investments.

You see, companies can't be everything to all people and still be successful. In a broad brush, companies can sell a high volume of products and services at a low price, or they can sell a low volume of products and services at a higher price. Typically, low price products don’t come with as many features and customer service as the higher price products.    

A perfect example: Walmart is known for selling lots of goods at very low prices with minimum levels of customer service. You can find clothing, household goods, furniture and wine all priced competitively. However, you might not purchase clothing at Walmart if you are looking for a special fit, brand, alteration or a sales person who can help you put together a wardrobe for work. It might be worth it to pay more if you want these features.  

Investment planning may share similar traits.  Your plan may be designed reduce volatility, hedge currency risk, be more tax efficient or any combination of these objectives.  With each additional objective to your plan you may need to pay a higher price to pursue these strategies.

When you make important decisions, like purchasing a house or selecting a doctor, I doubt the first question you ask is “which house or doctor is the least expensive?” You probably determine all of the features that meet your needs, and then you look at the value-to-price relationship.  

It shouldn’t be any different with your investments! Each of your investments should have a function within your overall investment strategy. You must determine what features each investment should have in order to accomplish the specific function. Then, you can begin comparing prices among investments with similar features.

Putting price first is simply backwards. And, the idea that low price is the most important part of investing comes from firms that want to sell you something, and low price is their marketing differentiator.

Yes, the price of your investments is important, but it should not be the starting point. If you still believe it is, please congratulate all of the companies who have successfully convinced you with their advertising campaigns!

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.  No strategy assures success or protects against loss. Investing involves risk including loss of principal.

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