Thursday, February 15, 2007

It's not the money. It's the time.

Many writers rightly point out the corrosive effect of fees and charges on investment returns. The case is often illustrated with examples showing the effect of a difference in annual fees of, say, 1% over a lengthy investment period of 30 or 40 years. This analysis is fine (and does demonstrate the effect of even marginally higher fees or lower returns over the longer term). Some go further and explain the adverse effect on the level of income a person will have to live on in retirement.

However I have yet to see an article which addresses the other implication of higher fees (or lower returns) - the additional time it will take to reach a savings goal. For those who are striving to achieve a given financial goal (in my case, early retirement), the objective does not change. What does change is the length of time it will take to achieve the objective. Put differently, the price of higher fees/lower returns is more time spent working full time in a very demanding job and less time pursuing other activities. Depending on what your objectives are and what time frame you are looking at, boosting returns by as little as 1% per annum could allow a person to retire years earlier. Personally, I would rather spend those extra years travelling than working to over pay an under performing fund manager.

Time is more valuable than money.


moneymonk said...

Personally, I would rather spend those extra years travelling than working to over pay an under performing fund manager.

Same here.

Time is precious~ Time also play a part on goals knowing if it is achievable.

Raphael said...

Hi, I agree completely.

I'm don't invest because I'm greedy, but because I know my time on this earth is limited and I value it.

Personally I avoid managed funds for this reason. They typically take 3-4% in service fees each year, so they'd have to outperform the market by more than this to justify their expense.

I've read statistics that 85% of fund managers do not outperform the index. For the time being I prefer to stick with buying blue-chips like HSBC (although admittedly I'm just a beginner).

With a good dividend, and reasonable growth it's already quite attractive. And it's stable enough for me to comfortably leverage with long term call options (which I intend to exercise with future savings), and margin loans.

Could you tell us more about yourself? I'm wondering if you are Chinese or Gwailo given that your site is in english? How long have you been investing, and what is your overall feeling so far of the journey you've embarked upon?


traineeinvestor said...

Hi Raphael

Thanks for leaving a comment. To address your questions:

1. I used to invest directly in the stock market but had to give that up when I took a job which offered a high income but came with a condition that I am not allowed to deal in listed securities (with a few limited exception). I still have a few shares from the old portfolio (which have done nicely) but will have to go through an approval process if I ever want to sell them;

2. my financial plan is to derive half my retirement income from rental property and half from dividends on equities. Since I can't buy shares in my current employment, I am forced to allocate money to managed funds. I find it frustrating that it is quite difficult to invest in no load, low MER index funds from Hong Kong. I have managed to get the front end load down to 0.5% (still 0.5% too much) and accept that a MER of between 1.5% - 2.25%, while way too high, is still better than leaving the money in the bank. Once I retire, I intend to progressively shift money from the managed funds directly into blue chip equities;

3. I use gearing on my properties but not my managed funds. I have used margin loans when I invested in equities and would do so again, but only with relatively low gearing to avoid margin calls being generated by short term volatility;

4. I've been investing for over 20 years (since I was a teenager). There have been times when I have done very well and times when I would have been better off leaving my money in the bank. I'm still learning (hence the name).