I see a lot of signs around me that we are heading for a new crash. Things like private lease cars, consumer credit, and investment advertisements are alarming me.
Everyone Should be Investing
Earlier this year I wrote a piece (in Dutch) on how the ads that everyone should start investing are indicating we’ve reached the top. With a stock market that has been rising for years, banks and investment brokers are taking advantage. Advertisement on TV, radio, and print are pushing the ordinary consumer to start investing their money.
The problem is, nobody actually invests in stocks outside of their retirement accounts (of which they don’t know how they work). I mean, besides the rich people and some FIRE geeks such as myself of course. I don’t know anybody outside of the FIRE community who actually invests. And yet banks and brokers keep advertising “investing doesn’t have to be complicated“.
But investing is not for everyone. I really think it could benefit anyone, but a lot of people are just not up for it. They think investing is stupid, or they are simply afraid.
With banks and other companies now advertising how easy it is to invest, more people might enter the space. That could be a good thing, but when you are uneducated, you might make some costly mistakes.
Costs of Investing
One mistake the banks are trying to let you make, is inducing too much costs. These costs are profit to the banks and brokers, but are killing your returns.
Of course, investing does have costs. The stock exchange has to make money. So are the holding companies and brokers. But the costs shouldn’t be too high.
When I invest through my low cost internet broker I pay no transaction fees when I buy ETFs from their core selection. For exchange connectivity I only pay 2.50 EUR per year!
On top of these costs (that I pay the broker) the funds I invest in incur costs. These costs are called the total expense ratio or TER. The ETFs I use have TERs of 0.25% and 0.35%. These are not the lowest you can find on the market but they are pretty damn low.
I used to invest in even cheaper funds, but EU legislation makes it impossible to buy them anymore.
What Do These Banks Charge?
Most investment services are advertised to your average Joe. He or she doesn’t know a thing about investing, but does want to generate better returns that they can get in their savings account.
So the banks offer them services in which you don’t need to know what you’re doing, everything is done for you. Actually this means that they are putting your money in actively managed mutual funds, that underperform the market and have TERs as high as 1.5%.
A difference of 1% in the total expense ratio can be a difference of hundreds of thousands of euros!
How to Lower Investment Fees
Please don’t fall for this crap and invest in low cost broad market ETFs. You can take a look here at my strategy as an example, or just read something about investing in general. It never hurts to educate!
How Are Investment Advertisements Predicting a Crash?
When everyone starts to invest, that means the hype is at its peak. People have seen a decade of great returns while the interest rate on savings accounts has been practically zero.
It’s understandable that they want to chase better returns. But they do so through their emotions, not their reasoning. And that’s what’s bothering me. People should invest all the time. Not after the market has had a great run-up.
When the market will come down, not if, when, shit will hit the fan for all these retail investors in investment products that are too expensive. They will cut their losses, pull their money out, and tell the world “I tried investing once, it doesn’t work.”
For now, I will not do anything against this. Yes I’m predicting something here. Actually, the crash if we can call it one, already happened a month ago.
Are my predictions worth anything? Of course not. I’m just a consultant trying to make reasonable assumptions. That’s my job. But that doesn’t mean that my story here will turn out to be true. Maybe the crash will not come. Maybe the investment advertisements will die out. Maybe every European will start reading Fire The Boss (be right back, upping my hosting contract!) and start to invest in proper funds.
What do you guys think about the recent hype around investing?