Last week, I noted that there has never been a better time to be an investor.
We’re enjoying ultra-low interest rates, rising corporate profits, the strongest economic growth in more than 30 years and a rip-roaring bull market.
But that’s not my point. I’m talking about something more fundamental.
This is a golden age for investors.
“How so?” you might ask. Let’s start with brokerage accounts.
It wasn’t that long ago that account minimums were high, brokerage commissions were huge and you could drive a Mack truck through the bid-ask spreads.
Today most discount brokers have no account minimums, and commissions are zero throughout the industry.
Prior to May 1, 1975, brokerage commissions were fixed.
You had to pay a minimum commission of $49 – equal to nearly $250 today. The average bid-ask spread was $13, equal to more than $65 today.
(After covering the spread and paying the commission, most investors were well in the hole by the time they got their trade confirmation.)
Deregulation and Charles Schwab – the first discount brokerage – changed this.
And 20 years ago, the internet flattened costs further still.
Increasing volume and wrongly maligned high-frequency traders tightened bid-ask spreads. Today most are just a penny or two.
If you can’t pony up $700 for a share of Tesla (Nasdaq: TSLA) or $3,340 for a share of Amazon (Nasdaq: AMZN), you can buy fractional shares that mirror the performance of the regular shares.
Plus, today there are dozens of no-load fund companies and hundreds of exchange-traded funds, allowing small investors to capitalize on the growth in virtually any sector in any industry in any region of the world.
Many funds offered by Fidelity Investments and Charles Schwab are available with no minimums, no commissions and no management fees.
No costs whatsoever. How great is that?
Another fine choice for investors is Vanguard, the nation’s largest investment company, with more than $7.1 trillion in assets under management.
Unique in the investment world, Vanguard is structured as a nonprofit corporation. That means Vanguard fund shareholders actually own the firm.
There is no incentive for the company to do anything other than provide the best service at the lowest possible cost. (If that doesn’t align incentives, I don’t know what does.)
Vanguard’s gargantuan asset base allows it to enjoy enormous economies of scale.
The average mutual fund charges fees six times higher than Vanguard’s. Six times!
If you have your money in broker-sold funds with front- and back-end loads, 12b-1 fees, and high management costs, you have no one to blame but yourself. (And your financial advisor.)
The internet has made accessing information – like quarterly earnings announcements and annual reports – a snap. All at no cost, of course.
The web has also made it possible to monitor your account in real time and execute trades in the blink of an eye.
So let me summarize the current landscape for investors…
Account minimums have never been lower. Choices have never been greater. Spreads have never been thinner. Transactions have never been faster. Management fees have never been lower. Monitoring your portfolio has never been easier. And commissions are zero.
Yet I still occasionally hear folks moaning that the average Joe – the small investor – “doesn’t have a chance.”
That’s the trouble with living in a golden age, I suppose. People walk around talking about how yellow everything looks.