OpnieuwBegonnen is a Dutch lady who has done really well for herself. She has lived frugally and paid off her home in full. She’s now 61 years old and has recently been made redundant. She was awarded severance pay (38 months worth of pre-tax salary) which she has put into a clever legal construction. Her plan is to live off this money for the next 29 years. (In The Netherlands our pensions are taken care of, so I assume she has a pension. On top of that I assume she’ll also receive social security when she’s 65. The severance pay will complement her pension and social security.) She’s had disastrous experiences with investing. However, she’s very disappointed with the current interest on savings accounts. Should she invest? (I don’t have the actual numbers)
Alex
She has looked at different options. One option is to invest with Alex. Her accountant and a friend of a friend invest with this company and are happy with the results. Ok, let’s have a look at this option.
Costs
I would immediately dismiss doing business with this broker when I look at the costs they charge. They charge a whopping 1% in expenses on your total invested capital with them. On top of that they dare to charge a ridiculous 10% performance fee on your capital growth! Wow! These fund managers sure know how to make themselves rich!
Performance
Now let’s look at their performance. Ah, that’s very very difficult. I can’t find what they’re exactly investing in. If I compare their five year results with that of Meesman, Meesman easily beats Alex at this game. Obviously, this is no surprise. With Meesman, you buy and hold and there aren’t any ridiculous costs involved.
Philosophy
Alex boasts with the philosophy that they’ll sell when they think the market is underperforming and buy when prospects are better. I get that this makes ignorant customers feel safe…the only thing is that these fund managers have no freakin’ clue on when to buy or sell. It’s been proven over and over again and even Warren Buffet advises people to buy and hold. You can’t time the market, it’s all about time in the market.
Oh, and Warren Buffet advises 99.9% of us regular investors to throw everything in an index fund, like Vanguard’s S&P500, in his annual letter. Buy and hold that shit. It’s what he wants his trustee to do WITH HIS OWN MONEY after his death. Why on earth would we want to pay fund managers to “manage” our portfolio?
My advice here is: don’t do business with Alex! Steer clear of those costs and fund managers. They’ll cost you thousands and thousands in the end.
Oh, the accountant and the friend of a friend is going to say this is all bullshit. They invested money themselves with this company, and they sure don’t want to be proven wrong. Yeah, they made money over the past years (how could you not, we’re in a bull market, you’d have to be the world biggest idiot fund manager if you haven’t made a profit for your clients from 2008 onwards…duh)…but they could have made more if they had invested in passive index funds.
Triodos Sustainable Equity Fund
Another option which this lady considers. I can be very very short on this one. Costs are 1.49% annually!!! Click it away, NOW! Investing at these costs is not an option. It will shatter your profits. Costs matter hugely.
Actually, all these type of actively managed funds are too expensive and mostly underperform.
What should OpnieuwBegonnen do?
Well, if she’s still interested in investing she should educate herself about index investing. She could start by reading jlcollinsnh’s stock series. Or by reading De Schitterende Eenvoud van Indexbeleggen. And throw in a book like The Elements Of Investing as well.
If she then feels much less hesitant and a bit more confident to start investing, index investing that is, she could open an account with Meesman and start throwing €100 a month into their global stock fund at 0.25% transaction fee and 0.5% TER (which is lower in reality due to the solution to the dividend leakage). The only downside is their annual €25 flat fee.
If she builds up confidence over a couple of months she could start to invest a bit more. If she’s really confident, she can contact me again.
What if she doesn’t feel confident about investing?
If, and only if, OpnieuwBegonnen has educated herself about index investing, understands the risks and trusts herself enough not to panic and sell during the next bear market she could start to invest. If this isn’t the case, she should stick to the plan she has now.
Conclusion
I think OpnieuwBegonnen should be really proud of herself. She’s done an excellent job at living frugally and is now completely free to do whatever she wants to do. If not investing gives her a piece of mind, then that’s just what she should do. And not be bothered with the current low interest rates. There’s always going to be risks involved if she’s after a higher profit and she’s made it rather clear she is very risk averse.
OpnieuwBegonnen: well done you!
Love,
Mrs EconoWiser
EconoWiser 