“I Don’t Pay Any Fees”

I was struck recently with how hard it is to get across a simple message about investing sensibly. A friend, Carl (not his real name), mentioned that he needs to get his investments organized, but isn’t sure how to proceed. He asked me what I thought.

I began with the simple ideas of not trading too much, choosing a sensible mix of stocks and safer investments, and avoiding fees. Carl immediately volunteered that he didn’t pay any fees. I countered a little too quickly and forcefully with “yes, you do.”

After I explained that a percentage of Carl’s portfolio gets taken out in fees every year, Carl remembered that he was told that a small fee came out of his returns. I tried to explain that this fee comes out even if his investments lose money and that over decades these fees can eat up one-third or even half of his money. But Carl was skeptical.

Unable to persuade Carl that fees are a big deal, I didn’t have much hope with the rest. I tried to explain that all of his investments ultimately amount to some mix of mostly stocks, bonds, and cash. Carl wasn’t sure if he owned any stocks. He listed a few marketing names for types of accounts and funds at a couple of financial institutions. He was skeptical of my claim that these accounts and funds in turn just hold stocks, bonds, and cash. Somehow, the marketing from financial institutions makes it all seem much more elaborate.

Carl is a smart guy. He even works in a somewhat financial area. But the things I was saying didn’t resonate with him. I don’t think Carl thought the things I was saying were wrong; he just thought they weren’t relevant to his situation.

I find this is a common problem. There are many writers and speakers who have clearly explained the main mistakes typical unsophisticated investors make, but their messages will often just bounce off because they sound irrelevant to people who think “I don’t pay any fees.”