The Stock Investment Option Closest to a Free Lunch

There are three choices for investing in stocks.

1. Pay an investment advisor to do the investing.   This usually has fee of around 1% (or more) of Assets Under Management (AUM) above any fees for ETFs or Mutual Funds, which vary from 0.03% to 2.0% or more.
   
   
2. Invest in individual stocks in a personal brokerage account.  Trading costs have been eliminated.  However, one has to invest time and effort to do research, monitor investments, and buy/sell stock positions.
   
   
3. Invest in a market Index fund, such as VTI (total market) or VOO (S&P 500), which have fees of 0.03%.  Other than initially buying, holding for the long term requires no additional effort.

Even though I have used managed investment accounts, I'm no longer using Investment advisors that charge 1% of AUM (Assets Under Management).  IMHO, they are not worth the ongoing annual cost since the majority of the work is the initial setup.   Ongoing maintenance should only require a few minor changes, which I don't feel is worth the 1% of AUM charge.

I have also invested in individual stocks on my own.   While more exciting and sometimes much higher gains, this approach takes more effort and time.  In addition, individual stock risk is a bigger issue, resulting in more monitoring of the stock positions.    Finally, while I have had some big wins, I have also had many losses, which net resulted in returns less that index funds based on the S&P 500.

Although I ignored the recommendation for many years, I believe broad market index funds are a great options.  Fees are usually as low at 0.03%.   Time and effort in minimized to invest.  Individual stock risk is low.   The index funds are self managing at removing poor performers and selecting future winning stocks.

With a cost of $0.30 per $1000 invested, broad market index funds are the closest option to a free lunch. There is little or no additional time nor effort required. Best of all, the returns beat over 99% of investment in other options on a long term basis.

Disclosure:  We own shares of VOO in our accounts.  I received no compensation for writing this post.

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This is not financial nor investment advice. Please consult a professional advisor.

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