“In recent years, with the U.S. stock market regularly providing returns well into the ‘double digits,’ we suspect that many investors have overlooked the importance of costs. Should the market revert to its long-term average, the impact of these costs will be more apparent.”
—Investment Guide, February 2001

If recent trends are any indication, we were right. Regulators, brokers, marketers, and even the financial media are suddenly trumpeting the importance of investment related costs. The SEC and New York’s attorney general are pursuing mutual fund fees and trading practices; most recently the revenue sharing schemes common among many 401(k) plans have come under scrutiny. (Contact us to learn more about our low-cost “unbundled” approach to 401(k) plans.) Our advisory clients are currently enjoying a commission “price war” between Schwab Institutional and T.D. Waterhouse Institutional in a battle to gain custody of more assets. Vanguard, the long-standing champion of low cost mutual funds, has ramped up its marketing efforts, only to be met head-on by Fidelity, which made its name touting actively managed funds, but has now shifted to aggressively marketing its low-cost index funds. Perhaps most telling, investors themselves seem to be catching on. According to Pension and Investments magazine, total worldwide investment in passive assets (largely low-cost index products) increased 10.6 percent to $3.5 trillion during the first six months of 2004.

With the days of the glamorous “dot-coms” gone, we (almost) find ourselves pitying the broader financial publishing industry. How does one sell magazines, after all, when one is reduced to discussing the dreary business of parsing investment related costs? We suspect our long-term subscribers have come to appreciate our steadfast commitment to helping our readers manage their investment related costs by recommending the most cost-effective investment vehicles within our recommended asset classes.

We are encouraged that the question of costs appears to have finally caught the attention of the broader investment community. It remains to be seen, however, whether this mundane but vital issue will be once again be shrugged off when the next bull market arrives. The vagaries of the market will not affect our message: investors should focus on those factors within their control: diversification, discipline and cost.

Also in This Issue:

The Foundering Market for Unit Investment Trusts
Passive Investing is Prudent Investing
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield