Lesson #1: The less you pay in fees, the more you get to keep"Management fees are one of the few things you can control, so control them," Conway writes. For example, the chart below from the SEC's Office of Investor Education and Advocacy shows how paying a 1% annual management fee can impact an initial $100,000 portfolio. Over 20 years and factoring in a 4% annual return, the investor loses out on $40,000 assuming he or she invested the money subtracted for fees.
Conway has often focused on costs as he has covered ETFs, which are known for their low fees and indexed approach. So, he took notice when Covestor launched passively managed Core Portfolios of ETFs earlier this summer that don't charge any management fees. They are designed to let investors track the market while paying as little as possible, as to benefit the investor as much as possible. Using technology already in place for Covestor’s active investing strategies, the company leveraged the lower overhead costs of streamlined trade replication (along with the know-how of the intelligent humans on the Investment Management Team) to produce such an investment product without the need to charge a management fee. "Covestor's program entails no management fee, just the underlying ETF expense ratios, which are measured in fractions of a percentage point, and trading commissions, which the firm estimates to be $20 a year," Conway wrote in June. Investing disruption, achieved.