Push to Lower Fees Continues

The chart below highlighted by Michael Batnick further demonstrates that investors are voting with their wallets as they realize they have been paying high fees for chronically under-performing funds.  In the first half of 2016 well over 80% of actively managed funds – experts researching and hand picking the stocks in their funds – saw investment returns that lagged the market in general.

And this is particularly important as market returns are forecast to be low – in the 3% range for the near future.  Much of these funds are moving to passive index based funds that cost a fraction of the fees charged by actively managed funds.

So if you are paying a fund 1% that could eat up a third of your return, or more if the fund did not beat the market / benchmark.  What’s worse is many fund managers are “closet indexers” who get most of their return from the overall market, not from their specific stock picks.

So pay close attention to the fees you pay, both for investments and for financial advice. It’s a buyer’s market in that regard and what you don’t pay you keep.



Dividends as Part of Total Return

Receiving dividends is a tangible way of seeing returns from your investments.  Along with price increases (or decreases) dividends comprise what is known, not surprisingly, as total return.

And it’s intuitive – if you are being paid dividends you are getting a return on your investment. But good luck seeing that calculated into the returns shown on your brokerage statement or web site.

Schwab, for instance, will show you annualized dividends on the monthly statement.  But on their web interface if you check for Unrealized Gains/Losses you see only the change in price. If you automatically reinvest dividends back into a holding, they will track and report that as a new investment, not part of the return from the original investment.

Brokers do this as it ties to capital gains/losses that are realized, which they will feed into the 1099’s they issue for tax return purposes.

But as an investor seeking to understand the total return of a given investment you are often left to your own devices, with calculator in hand.

Eddy Elfenbein of Crossing Wall Street just published the following:

Investors sometimes overlook the importance of dividends. Consider these stats: From the market’s closing low on March 9, 2009 until yesterday’s close, the S&P 500 gained 233.74%. But the S&P 500 Total Return Index, which includes dividends, gained 294.06%. That’s a nice boost.

Like individual brokerage statements, most discussion of market returns focus on price change alone.

The point is that dividends are a major contributor to total returns, so keep them in mind when evaluating the performance of your investments.