The fees you actually pay for index funds

As we started writing this blog, we also started reading other blogs about personal finance and FIRE. The blogs are all very different, but it seems as if they all agree to one thing… that investing in passive index funds is the shit! And we are not to blame them, as it very easily gives you a diversified portfolio at a much lower cost than buying actively managed mutual funds. But are the passively managed funds so cheap at all?

As readers of our blog know, we prefer to “invest like an index fund” rather than invest in an index fund (Single stocks or index funds?). The main reason for this is costs. Cost structures for buying single stocks is extremely easy to understand, as it is the commission fee you pay when you buy and sell the stock.

Portfolio update – February 2018

February started out with some wild volatility in which we bought one new stock – Procter & Gamble. As you can see below that wasn’t the best idea, haha. Hopefully it will become a winner in the long run.

We ended up being down -2.4% which isn’t that bad compared to the indexes. In January we wrote about single stocks vs index funds and for that month we concluded that our returns was quite far from the index’s. Looking at the chart below, you can see that our return this month follows the returns from the indexes quite well. It shows that with a somewhat diversified portfolio as ours, you start to have a portfolio that tracks what happens in the market pretty good.

Portfolio update – January 2018

January… Cold dark month here in Denmark so karma gave us some good returns to make up for it! But by the looks of the markets here in the beginning of February karma found out that we spend most of January on a bounty island in warm weather. Anyways February still have many days to surprise us so lets stick to January for now.

As we had spend a bit on the vacation we didn’t buy any new stocks in January so our portfolio remained the same.

We ended up being 1,5% down on currency, but there were some heavy hitters to make up for that so our return for the month was 3%. Please give us more of these months! Please.. PLEASE!

Single stocks or index funds?

Investing in the stock market can be daunting so actively managed mutual funds has traditionally been the go-to vehicle for the average Joe who wants an easy peasy investing solution. Index funds (passive funds and ETFs) have however become very popular in the recent years due to their lower costs (read more about the impact of fees here) and their simplicity and transparency. Some people however still think the costs are too high and some nationalities are restricted due to unavailability of funds or unfavourable taxation. A way around these issues is to buy the stocks yourself and invest like an index fund.

Afraid of buying stocks at the wrong time?

Are you afraid of buying your stocks when the market is at its highest? If you are a longterm investor, that mostly buy stocks, our perspective at stock buying might inspire you.

The market goes up and down all the time, but in the long run (let’s say 10-20 years) the market has historically always increased. As an investor you will not have the ability to forecast how the market will move tomorrow or in the future (and if you can, stop reading this blog and invest some money instead), which is why you will never have a chance to know whether you buy a stock when the market is at its highest or lowest. Our strategy to overcome this issue is to buy our stocks with a somewhat fixed frequency. At the moment we aim for buying approx. one new stock per month, instead of buying five new stocks in one month and then wait maybe half a year before investing again. By doing so, we do not risk investing in five stocks just before a large drop in the market. By investing in only one stock each month we might have invested once when the market was at its highest but would maybe have gotten the four other ones cheaper. Off course this also goes the other way around, so that you find out you should have bought all five stocks in the same month because it was the cheapest time to buy. But if you want to eliminate some risk, you can do as we do.

Dividend update – Q4 2017

We said it before, but we gladly repeat it: We love dividends 🙂

And now it is time for a new dividend update for the last quarter of 2017. This quarter we received twice as much as in Q3, which was primarily due to the high dividend paid out by Fortescue Metals Group. When we bought the stock the price was  pressured by high debt in the company, but it quickly managed to bring down the debt, which caused the price to recover and made the cash generation available for payouts. Hurray for buying a stock at the right time and for debt restructuring cases that goes right!

Portfolio update – December 2017

December update! – Did we get rich this month?

Maybe not rich, but for the first time we did better than both of our benchmarks. We actually did almost 2% better than the MSCI Europe index, which makes up for some of our underperformance the last months:

In December we once again made two investments. We bought stocks in the automotive company Daimler AG (we now feel we own part of a Mercedes 😉 ) and stocks in Reckitt Benckiser Group.

Our portfolio now looks like this:

To dig into the performance of the single stocks, you can get an overview here:

Why you should not be afraid of picking out stocks

Some people get a thrill trying to pick the right stocks, but the majority are afraid they will pick the wrong ones. But here is a statement: As long as you invest in a market ruled by professionals, you will always buy a fair priced stock. To understand this statement, you have to understand how share prices are set and who affects them.

Who affects share prices?

Certainly not you and me when we are talking larger stocks. Of course we cast our votes with our money, but we at too small to matter in the big market. A lot of people let an investment professional manage their funds instead of trying to do so themselves. This causes that the most successful and thorough professional investors often obtain control over large sums of money and thus more power to determine what the share prices should be.

Portfolio update – November 2017

It’s time for the monthly portfolio update for November, and SORRY! we know we are late.

In November we have invested in Schouw & Co. A/S and increased our number of shares in ISS A/S. This showed up being a really bad idea in the short run as both stocks have fallen more than 10% in November – good thing we are long term investors.

Looking at our entire portfolio, November hasn’t been the best month.

We are down 3,62% in our currency. Our newly bought stocks combined with Vestas Wind Systems are the stocks with the worst performance this month and are big influencers in the negative return.

How do we all make money?

In rough terms, there are only two ways to make money. Trade your time for money or trade your capital/assets for money. Most people does both throughout their lives. They have a job where they trade their time for money and they have some assets in form of surplus capital in a savings account or in investments that generate some money.

With this in mind, there are only four ways to increase your income. On the “time for money” side, you can spend more time working or you can learn unique skills so you can demand a higher salary for your time. On the “asset for money” side, you can acquire more assets or use the ones you have more efficiently.