At the Money: A New Podcast from Masters in Business

Episode Summary

Executive Summary: This podcast episode discusses the golden age of investing, highlighting the dramatic reduction in costs and friction for individual investors. Host Barry Ritholtz and guest Eric Balchunis explore how low-cost index funds, ETFs, and the shift to fee-based advisors have created a utopia for investors, contrasting it with the high fees and limited access of the past. They also touch on the importance of maintaining a low-cost core portfolio while being cautious with speculative investments.

Main Topics: The Golden Age of Investing (Priority: 5/5): Discussion of how current market conditions, including low fees, zero trading costs, and broad access, make it the best time in history to be an individual investor. Shift from Active to Passive Investing (Priority: 5/5): Analysis of the long-term trend from high-cost active management to low-cost passive index funds and ETFs, driven by technology and investor awareness. Role of Fee-Based Advisors (Priority: 4/5): Examination of how the move from commission-based brokers to fee-based fiduciary advisors has aligned incentives and reduced conflicts of interest. Historical Context of Investing Costs (Priority: 4/5): Comparison of past investing challenges (high fees, lack of information, high trading costs) with today's low-cost, transparent environment. Core and Satellite Portfolio Strategy (Priority: 3/5): Advice on building a portfolio with a low-cost core (85%) and allowing for smaller, speculative investments (satellites) without risking the overall portfolio. Future of Asset Management (Priority: 2/5): Discussion of how asset managers like BlackRock and Vanguard use economies of scale and ancillary services to compete on fees.

Key Arguments: The combination of low-cost index funds (pioneered by Jack Bogle) and the internet has democratized investing, making it cheaper and more accessible than ever. The shift to fee-based fiduciary advisors has reduced conflicts of interest, as advisors now seek the cheapest funds for clients rather than accepting kickbacks. Investors today can own the entire global market for less than 0.1% in fees, compared to 2-3% plus loads in the past. A low-cost core portfolio (around 85% of assets) should be the foundation, with small speculative investments (hot sauce) allowed as long as they don't destabilize the core. Younger investors may not appreciate current advantages, often favoring crypto or options trading over traditional stock investing. Technology and consumer demand will continue to drive down costs globally, though adoption varies by country.

Data Points: Cost to own global market: less than 0.1% - Compared to 2-3% plus upfront loads 50 years ago. Bond ETF fee: 3 basis points - For a whole basket of bonds, including junk bonds. Smart beta ETF fees: sub-five basis points - For value, growth, and dividend ETFs. Active ETF fees: below 40 basis points - Many new active funds are cheap and effective. Assets managed by fee-based advisors: about 75% - Up from a much lower percentage, trending toward all fee-based. Historical trading cost: $75 - After deregulation, compared to $175 before. Vanguard assets under management: 8 trillion - Economies of scale allow spreading costs. BlackRock assets under management: 9 trillion - Similar scale advantages.

Pivotal Quotes: "I think we're in a utopia. I think this is as good as it ever has been." — Eric Balchunis: Describing the current state of investing for individuals. "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." — Barry Ritholtz: Highlighting the unprecedented low cost and ease of investing today. "You can own the entire world for less than a tenth of a percent. It's practically free." — Barry Ritholtz: Emphasizing the dramatic reduction in global diversification costs.

Implications: Investors should recognize and leverage the current low-cost environment by building a diversified, low-fee core portfolio. While speculative investments are permissible, they should be limited to avoid undermining long-term returns. The trend toward lower costs and fiduciary advice is likely to continue globally, benefiting individual investors.