Part 4 is it possible to create investable assets that are low cost AND active?

Part 1 (8 June), part 2 (15 June), part 3 (22 June).

The short answer is yes, with the help (of course) of new technology.

People investing for the long term (eg parents on behalf of new born babies or people who are decades away from retirement) need decisions that are Simple, Sensible, Set & Forget & Cheap and lead to Good Performance.

a) Simple = checklist that takes less than a minute. This is possible if 20 years is the minimum time horizon. This constraint makes many other decisions much easier.

b)  Sensible = save investors from bad decisions as much as possible. The obvious asset class is equities, because they have outperformed bonds over most 20 year periods.To get adequate diversification, there should be a minimum of 10 stocks.

c) Set & Forget = automated (robo) management for the lifetime of the investment. This makes it simple for parents and also make zero fees easier (see below). Automated (robo) management also means that the 20 year old person will learn the compounding lesson without the noise of a story about how good or bad a manager was.

d) Cheap = zero fees or taxes. Zero fees means the fund manager must donate their normal fees (ie they treat it as philanthropy or a loss leader). Zero taxes means taxes a tax advantaged scheme by country; rollout has to be country specific.

e) Good Performance. The performance of the chosen equities must be good enough over 20 years to deliver a meaningful amount that teaches a positive story about compounding.  Parents will be given a choice of a passive index tracker and an actively managed fund. In both cases the fees  will be the same (ie the active manager must match whatever fees the passive index tracker offers.

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

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