Price matters. Cost matters more. What does that mean?

Price is the sticker-price you pay. Cost can be higher or lower than the price over time.  For example, if two cars and one has a lower price but ends up being higher-maintenance and doesn’t last as long, the higher-priced car can be lower cost.

With investment services (and there are many!), the same phenomenon occurs, although unfortunately it can be harder for non-experts to measure. Here are a few examples of how this can affect you:

• Some have high prices and high costs: Traditional “full service” investment product or brokerage firms are sometimes a good example of this. These firms often don’t provide more than investment services, which means you may invest without objective advice towards achieving your goals. That means you could be “climbing the wrong ladder,” which can be very costly to your life plans. To complicate it further, the services may appear to be “free” but often have non-transparent and hidden fees that are higher than most other services, and the brokers often do not or cannot agree to act in your best interests. To be fair, some of these firms have good people who do their best to act in the best interests of clients, but it isn’t easy for the untrained eye to know which is which.
• Some have very low prices and medium or high costs: If all you care about is low costs and you aren’t concerned about results relative to your goals, or you are an investment expert, there are plenty of options, including going directly to index mutual funds or ETF’s. If you are not an expert, low price can be high cost. For example, if you put all of your money into a low cost global stock ETF and forget to or don’t know when to start adding bonds or rebalance to reduce your risk as your life stages progress, you could end up with excessive risk and experience a major setback when the market crashes. This is especially likely to be harmful if you don’t have time to wait out the recovery or you become an emotional investor and lock-in the losses by going to cash, and miss the recovery. That downturn could be much more costly than paying slightly more to get some basic help and guidance and reminders over time. Some on-line services help partially solve this problem by helping you build a portfolio, however many do not help you determine an appropriate portfolio consistent with your goals or help you calculate your goals.
• Some have low prices and low or negative costs: If you find the right balance (i.e. the “Goldilocks” scenario), you may have the best of both worlds. Costs should be fair and never excessive, and there should be value. If you are young with a low-complexity financial situation, you may do well by having a service that helps you set your nest-egg goal, helps you determine how much to save, wisely invests in a low-cost portfolio and provides reminders and education to help you get on and stay on track, then you may significantly increase your chances of success. If you have larger wealth and a more complex financial situation, having the option of paying an additional reasonable fee to have expert human help you navigate opportunities and minefields can be invaluable.

Welcome to WealthStep! …options for your different needs over time.