You prob heard this one before – the fees are a drag on meaningful wealth creation? But why do fees matter, really?
To answer this question, let's turn to history for a moment. Going back 121 years, we look at the divergent outcomes of two markets – the US and UK. In 1900, UK was the largest stock market, storing 24% of global equities value, and the US was a close second with 15%. Fast forward to 2021, the US is now the leader with 56% of global value. Meanwhile, UK has slipped to 4th place behind Japan and China, preserving only 4.1% of global equities value.
Of course, this says a lot about the strength of the US economy in the 20th century, with new sectors driving growth, from industrials and retail (early on) to technology and healthcare (later in the century). But this doesn't change the underlying math equation – the US stock market grew at a faster clip, attracting higher levels of investment:
In nominal terms, the US grew ONLY 0.6% quicker. But 1 dollar invested in the US in 1900 would've given you $69K back a hundred and twenty-one years later, for the UK – $39K. Our research shows that the average investor pays ~2.5 - 3% of AUM in fees. Reducing it to 1.5% means a gain of $2.5M on a portfolio of $10M within 10 years – sufficient to prompt action now.
“With the US growing only 0.6% quicker than
UK, $1 invested in the US in 1900 would
have given you 80% more return in 2021.”
Since most investors withdraw cash out of the accounts to enjoy their lifestyles, resulting in wealth destruction, the several hundred basis points spent on fees often make up the borderline between continual wealth accretion or gradual decline.