Fee Compression Means Money in Your Pocket

BY STEVE DINNEN

Fee compression is good – don’t fight it. For investors and those of us having our wealth managed, it’s money in our pockets.

Fee compression comes to you in two ways. First, it involves a lowering of fees charged on investments you make (not on individual stocks or bonds) in stock or bond funds, or ETFs. A typical mutual fund will have management fees, operating expenses and sales commissions, all of which chew away at the value of your portfolio. The same situation exists with ETFs. Either way, fees can have a big impact on your ultimate returns. A $100,000 investment that grows by 7% a year would be worth $197,000 in 10 years, without fees. Subtract a 1% annual fee, and the result is $179,000. And those fees are assessed whether the underlying investment rises or falls in value. And because fees compound over time, just like portfolio assets, the longer the investing period, the bigger the loss.

More efficient trading and better management practices have succeeded in lowering these fees over time. Morningstar estimated in July that the asset-weighted average expense ratio across all mutual funds and exchange-traded funds was 0.4%. This is less than half of what investors paid in fund fees, on average, in 2001.

Then there are fees from the advisers. The landscape there hasn’t changed greatly in recent years. Peter Hill (pictured), partner at Des Moines-based Vision Financial Group, said his firm has lowered fees and is comfortable with where they sit now. “We’re very competitive wlth where our fees are,” he said. “We led … quickly to that base … and have seen the rest of the profession move toward us.”

Vision is open about fees (as should be all advisers). The company charges a flat fee ranging from $750 to $2,000-plus, depending on what sort of financial plan you want. For ongoing asset management, it charges 1.2% for assets under $250,000, to 0.8% between $1 million and $5 million. After that, fees are customized.

West Des Moines-based Foster Group hasn’t changed its fees in decades, according to Matt Abels, chief practice officer there. In its place, a sort of reverse in-kind services arrangement has developed, with clients tapping into Foster Group for year-end tax planning or estate planning. “We’re being asked to do more” and pricing hasn’t been adjusted, Abels said.

Travis Rychnovsky, chief growth officer at Foster Group, noted that in years past most financial advisors held CFP – certified financial planner – designations. Over time they have boosted their skills level and it’s much more common to find CFAs, such as him, or CPAs or JDs working accounts.

Check Out Regional Carriers to Get Around in Europe

BY STEVE DINNEN

Wizz, Jazz, Hop. Buzz? No, these aren’t cartoon memes that pop up when Batman smacks a bad guy. They’re airlines in Europe – even Poland-based Buzz (not sure I want to travel with them). In addition to the big national carriers that haul us between the States and Europe, like British Air and Air France, there are more than 30 regional carriers that hop all over the continent and into Africa and the Middle East.

Ryan Air, of Ireland, is far and away the largest carrier in Europe, swamping second-place Lufthansa. It’s sort of the Southwest Airlines of Europe, with fares that call themselves out as discount. Not so sure about that, as they charge for even the first piece of luggage. They also charge for so-called premium seating (all the seats are the same – some are just closer to the door). And once on board expect no frills; we didn’t even get water on a Volotea flight to Barcelona.

One carrier tried to sell me on “collapse” insurance, which would have covered my ticket had the airline folded on me.

But these carriers pretty much go anywhere. A middle-sized city like, say, Nantes, France, population 303,000, has 11 carriers serving more than three dozen destinations. Nantes to Cagliari by land and boat: three days. With Volotea: 120 minutes.

Americans' Complex Relationship With Extreme Wealth

BY JESSICA DICKLER FOR CNBC.COM

Be like Mike ... Bloomberg, that is. That’s what many Americans apparently aspire to today.

Some 44% of U.S. adults believe they have the available tools to become billionaires, largely fueled by speculative investments such as cryptocurrencies, according to the Harris Poll's recent "Americans and Billionaires Survey."

“It’s not just investing in an IRA [individual retirement account],” said Freddie Rappina, owner of Opta Financial in Tampa, Florida. “People want to achieve a higher wealth status, and the way to do that is to use investments to build assets and generate income,” Rappina added. ”Investments don’t make you rich; income makes you rich.”

At the same time, most Americans have a love-hate relationship with extreme wealth. “There is a mounting disconnect,” the Harris report found: Six in 10 adults want to become a billionaire one day. Meanwhile, 40% said they despise billionaires. Many also said that billionaires have a responsibility to better society but aren’t doing enough.

As the rich get richer, 66% of adults see wealth inequality as a serious national issue, and nearly half of Americans, or 47%, believe there should be a limit to wealth accumulation, the report also found. READ MORE.

Price Cuts In, Bidding Wars Out in Housing Market

BY MARY ELLEN CAGNASSOLA FOR MONEY.COM

Homebuyers, rejoice: Price cuts are popping up on more houses for sale across the U.S., offering long-awaited relief following two years of fierce competition.

Data released last week by the real estate brokerage Redfin shows more than 15% of home sellers dropped their asking price in nearly 100 big cities, with price cuts especially likely in spots that were hot housing markets during the pandemic. In the eight cities topping the list, more than half of homes for sale saw price cuts in July.

The findings go hand in hand with the slow disappearance of bidding wars, which have plagued homebuyers during the housing boom, and a general cooling off of the housing market. READ MORE.

CNBC.com explains how the results of the November election could influence the future of Social Security.

Money.com explores how student loan forgiveness will affect the stock market.
Forbes.com has just released its list of top colleges, with Harvard falling out of the top 10.

dsmWealth is published on the first and third Thursday of each month and updated on dsmMagazine.com.

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