I'm Barry Ridults, and I'm excited to tell you about my new podcast, At the Money. Each week, I'm going to spend about ten minutes or so diving deep into a specific topic that affects you and your money, acquiring it, spending it, and most of all, investing it. We'll talk about things like portfolio construction, why fees matter, how to build a set of bond holdings, why it matters so much to manage your own behavior as an investor. I've been in this business for nearly thirty years as a
trader and a professional money manager. I run over four billion dollars at my firm, Redults Wealth Management. These aren't theoretical academic discussions. We're going to show you exactly what you need to do to achieve personal financial success, whether you're on your own or working with someone else. Strap in for episode one of At the Money, starting right now. We've had more than a decade long of you know,
just rising market. We said, Vanguard bonds are back, We have real positive interest rates.
Companies that are going to be high quality and resilient.
Equity is getting cheaper, which means that really people should be buying them. Things have literally never been better for you, the home investor, than they are right now. Think about it. It costs nothing to trade. Your custodial fees are practically zero. ETF and mutual fund fees have plummeted. There's just simply no better time in history where it costs less. There's less friction, less ability to get a broad exposure to
the market at practically no price. Think about this. Fifty years ago you wanted to go buy a mutual fund that gave you global exposure, it either didn't exist or cost you two or three percent plus an upfront load. Now you can own the entire world for less than a tenth of a percent. It's actically free. And I'm gonna tell you why. Helping us unpack this issue, Eric Balchunis is senior ETF analyst at Bloomberg Intelligence. He also
wrote a fascinating book called The Bugle Effect. So, Eric, how great is it out there to be an investor today?
I think we're in a utopia. I think this is as good as it ever has been. And what's beautiful about it Now it's not just index funds or quote market beta funds that are cheap. You've now got even niche categories getting lower costs like bonds, you can get a whole basket of bonds for three basis points now. Even in like a category like junk bonds, you now can get three basis points for a whole basket of junk bonds. Those used to be pricey too us to
be pricey. You can also get things like smart beta, like value growth. Those are all sub five basis points now, so you can actually mess around with like value growth dividends. All that stuff is now under ten. Even active active has come over to the ETF space and a lot of the active funds coming out now are below forty basis points, so they're cheap and it's kind of working.
So let's talk about the overall trends. And there's a little bit of a chicken and egg issue which came first. So there's been a general move from active to passive. There's been a move from high cost to low fee. There's been a move from ongoing commission transaction base to fee based. Wherever you look, things have been trending in the investor's direction. Which is driving which what is the what is the cause and what is the effect.
I wrestled with this in my book because if you look at the percentage of advisors, they get paid as a percentage of the client assets, which is called fee based or fiduciary. And that's important because now the advisor is out there looking for the cheapest funds or the best deal for you, whereas in the past they would essentially get what's a briber or kickback from the mutual fund. Right, guess who paid for it, the client came out of
the client's money, that five percent load. That was clearly not a good system, all kinds of conflicts of interest. Let's put a little flesh on that, because I think people don't realize what used to take place at the big wirehouse. So it was called shelf space. And if you wanted to sell your mutual funder ETF to the thundering herd of thousands of brokers, no particular brokerage farm in particular, you had to pay the company a fee like some sodas and potato chips due to supermarkets to
be on that platform. And tell us how significant were those fees? Twelve B one fees is that right, twelve B one that shows up in the total expense ratio. But the killer is loads. I mean, I know loads have phased out, but they be five percent. I mean, you know much return you have to get just overcome that one shot. The expense ratio is year after year. Then there's trading costs on top of that, so it's
about two percent plus the five percent load. In other countries they're still doing this, by the way, but America, the fiduciary and fee based advisor movement has gone really hockey stick. I think right now we're about three quarters of all the assets are managed by fee based fiduciary advisors. A quarter still is the commission based world, but that's again trending towards all fee based. And then the other
thing is in other countries that's much lower. So when we study ETF and low cost adoption around the world, it's interesting. Really two things you need to drive this. One is a fee based advisor movement because they're tied the hip. I don't know, it is a chicken or egg. The more fee based advisors there are, the more money
goes into low cost than ETFs. And you also need a population that doesn't think the government is going to completely cover its retirement because our government pushed us into four to one case, we had a little savvy about friends or picking an advisor. So I give the consumer in America a little credit here for pushing this as well. But certainly these underlying trends are pushing the trends towards low cost, no doubt.
So what do you think is a driver of this? Is it the Internet? Has Wall Street become more competitive? How much has technology driven this?
Yeah?
I mean there are a lot of possible explanations for this. What do you think it is?
So in two thousand and eight, all this really took off, and Michael Kitsys, who is a rates about the advisory world, great guy blogger, he said it was the Internet that killed the high cost active manager actually sent that theory over to Jack Bogel and he writes back, I'd like to think I had something to do with it, and he did, honestly, he does say the Internet and the
spread of information. It's much easier now to see what you're paying, what you know in these charts that show you what you're paying and what you don't get what you get. Also, you could read blog posts from people who are maybe a little more pro that, and then all seeps into the mainstream media. So I think the Internet helped a lot. But you understand that by the time the Internet hit, Bogel had done all the work to get an index fund to fifteen ten basis points.
That was a struggle. It took thirty years to get there. So when the Internet hit, Vanguard was completely ready for that moment, and I think the combination of the two proved to cause a sensation. And I also think when you talk about the phebas advisors, I think some of the movement from a commission based broker to become a
phee based advisor was born because of Vanguard. You could not buy Vanguard if you worked at a big company, a big bank, and you got a commission based fee because that company, Vanguard wouldn't pay them for the shelf space. So if you want to do that, you had to leave that big firm and start up in RIA, which is what you are. And those arias now make up
a bigger and bigger portion of the money. And now the big companies, though, are actually moving more towards what the rias did, So I almost give Vanguard a little credit for that, because if you wanted Vanguard, you couldn't get it where you were typically, But we look around the world in other countries, a lot of times they just go to the bank that their grandfather used. Then the consumers there aren't is like heads up. Also, a lot of the advisors still believe in active or they
get the commission. Still it's moving slower elsewhere. There's a couple countries like US in Australia where again those two elements are there and you see it moving pretty quickly. But ultimately, I just believe in technology, which is the ETF is a good technology, and I do believe in consumers going with lower fee stuff. So those two things ultimately are going to win out. No matter how rough the plumbing is, ultimately it will sweep the world.
So I want to flesh this out for anybody who is under fifty years old and is listening to this. In the nineteen seventies, if you want to buy a stock you had to first open a brokerage account. Then when you were finally all that was set up, which could take days or weeks, you had to pick up a phone and call your stockbroker. On the phone, you had no idea what prices were right, You had no idea what the brokerage fees were there was a minimum they couldn't discount below.
They were like seventy five bucks one.
Hundred and seventy five bucks. That was later. Seventy five bucks was after what they called the Big Bang where they deregulated and allowed them to drop trading costs to a mere seventy five bucks. Maybe you subscribed to a newsletter that would be mailed out to you once a month. There was no live radio, there was no live TV. You would get day old stock prices in the Wall Street Journal only for the big stocks, and weekly in
barons you would get week old stock prices. And if you subscribe to a service like Value Line, well every quarter it would get updated. Today, none of that is true. Do people have any idea how good they have it today?
I don't think so. And I also think this is lost on the younger generation. I see a lot of them like blowing off stock investing in favor of crypto and call options on Tesla. I know they're trying to have a good time, but you have to understand that stocks are great. They create cash flow. People get up and work at these companies and create value. That's what you're investing in you are an owner of that company.
And so the idea that you can own all of these companies in one shot for a couple basis points fee and this company you outsource all of it. They do everything, the dividends, the rebalancing. That is a beautiful thing. It's almost lower fee than it should be. I mean it really. They do a lot of work for you. There are economies of scale. When you're black Rock running nine trillion or Vanguard running eight trillion, you could spread those costs around.
To a lot of investors.
And this is something that has to be brought up. Though there are other ways they make money. And part of what we say is in the future asset managers need a way to subsidize their fight against Vanguard. So like black Rock sales technology, they have institutional business because if you're going to fight Vanguard in the terrodome, you got to be cheap and so, but that doesn't make much money for them. So the future of asset management's
come with these other ways to do it. So if you're an investor, know that you might be trying to be upsold on some certain things and that you know it's okay. Just know about it. And the other thing that I think you watch out for is as more people go into a cheap core passive portfolio that might have an all in fee for like four basis points, and you're like, wow, I'm set. Never need to touch it. I don't care what the market does up or down.
I got the best deal on Earth. The only thing that I have found people doing now is they get a little itchy. But instead of selling the core, which is good, they keep that there. They do go and do like some Foamo hot sauce type stuff. So we do see flows going into like thematic ETF's crypto. But I think if that stops you from messing with the core, then it serves a behavioral purpose. So I'm not against
hot sauce, but I do think be careful. There's a lot of hot sauce out there, and I would just make sure you proportion that correctly as if it were a meal. You don't want to spread hot sauce all over the meal. Call that core and satellite.
Yes, as long as your core is solid, you could have you know, moons around the planet is fine. The other way I like to describe that is here's the Christmas tree you want to hang some ornaments on it, fine, but the tree has to be you know, eighty percent of it. It shouldn't shouldn't the ornament, shouldn't knock the tree over exactly. And to me, that's the modern portfolio, real low cost core about eighty five percent of it,
almost like free. And then people you know, do a couple things that decorate the tree, which cost a little more, but overall your lower ear fee is way.
Lower than it was twenty years ago.
So here we are. We're in the golden age of investing. Everything is awesome, and not a lot of investors appreciate it, especially people who didn't experience what it was like in the bed all days where you didn't know anything. Whatever you did cost you money, Fees were hidden, costs were high,
and today it really is utopia. There's nothing to fix other than appreciate how great it is to be an investor in the twenty twenties, in the twenty first century, and don't be afraid to put your money to work in equities where they can compound for you over time. You can listen to the Money every week finding in our Master's and Business feed at Apple podcasts. Each week we'll be here to discuss the issues that matter most
to you as an investor. I'm Barry Rittolts. You've been listening to At the Money on Bloomberg Radio.