For some time now on the blog and in my book Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere I have talked about the importance for investors to look for returns wherever they may find them. However for the vast majority of investors that is not in actively trading, per se, but rather in everything else that goes into their financial lives.
A couple of weeks ago I wrote about the need to have a “broader definition of alpha.” This is due in part because even professional investors are having a hard time coming up with reliable sources of alpha. I closed that post with this:
There are no easy answers to generating higher returns from the financial markets. The investors who delve into strategies that focus on leverage, complexity and opacity end up hurting many more investors than they help. Ultimately we investors (and consumers) can only pull those levers over which we have some control. While that may not be a satisfying to some one looking for “the answer” in the financial markets, it is more satisfying because it relieves us of the anxiety of putting all energies into something, the financial markets, over which we ultimately have little control.
Wesley Gray at the Turnkey Analyst has a post up today that looks the high toll that expenses and tax inefficiency have on investor. The whole post is worth a look but the following comes from his conclusion:
At the end of the day, what sensible investors should seek are a few very simple things. Minimal expenses. High tax efficiency. Transparency. Intelligent investment process. It’s not that hard. It is reasonably argued that mutual funds, in the aggregate, are a tremendous disservice to the investing public, because of the factors discussed above. Unfortunately, you as an investor are on your own to navigate your way through dangerous financial straits, and avoid the fees and turnover that can sink your ship. The task can be daunting, but knowledge goes a long way.
It is hard to disagree with much in that statement. The challenge is that the financial media, that increasingly is becoming a series of overlapping personalities, does not focus on things like tax efficiency. This is due in large part because these strategies are evergreen, and do change much over time, and are therefore kind of boring. Investing shouldn’t be exciting. If it is, you are likely doing it wrong and costing yourself money along the way.