It is one of the saddest headlines you will ever see. The Financial Times this week reported that the amount of money invested in passive funds since the global financial crisis had grown by 230% to $6 trillion.
Don’t get me wrong. I’m all for low fees. It is universally acknowledged, and rightly so, that high fund management fees are a significant anchor that candrag down investment returns.
But the corollary does not follow. It is not automatically the case that a fund
with low fees is naturally a superior proposition. Starting values matter. In many cases,
they are practically the only thing that matters.
The single most important characteristic of any investment you make is the initial price you
pay for it. Whether you’re investing in shares, bonds, property, fine wine or classic cars,
what you pay on purchase will be the biggest driver of subsequent returns. Everything else
is of secondary importance. Price is what you pay. Value is what you get. (Or don’t get.)
Tim currently works as director of investment at PFP Wealth Management, a UK-based investment and financial advisory practice which advises on and manages £1.5 billion in client asset. He is also a regular contributor of articles to MoneyWeek and to our Roundtable discussions. Tim runs an investment advisory service, The Price Report, especially for MoneyWeek readers – giving individual investors the chance to hear the very latest views, insights and specific tips from top-level City investors and professional managers. He also pens The London Investment Alert and The Price of Everything.
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