The Panem of Investing

The Panem of Investing

The Latin term panem et circenses (bread and circuses) is a figure of speech for a superficial form of appeasement.  It is a diversion or a distraction from core issues.  If you’ve seen the movie Gladiator, multiple times they show Roman soldiers throwing bread into the stands of the Colosseum prior to the games starting.  Both the provisions of bread and the games themselves (hence bread and circus) were literally designed to be distractions from the Roman citizens’ poor living conditions.

Roman politicians actually passed laws to keep the votes of the poorer citizens in exchange for giving out cheap food and entertainment.  Thereby those that gave bread and entertainment rose to power off the backs of the poor Roman populace.

So, what does this have to do with investing?  The subject of portfolio cost or investment fees has come to dominate the discussion boards in virtually every channel.  Additionally, low-fee investing has interestingly become a sales and marketing mantra for many firms.

A query on Google for some semblance of empirical data shows that a search for the phrase “investment fees” yields 273M results, which amazingly exceeds the current “Bitcoin” search results of just 215M.

If perception is reality, given the volume of discussion surrounding this topic, then it would seem that if everyone just used low-cost index funds for their retirement portfolio, then everyone would be financially independent at age 65.  Logic and common sense would tell us this is not the case.

My intent is not to demean advocacy for low-fee investing as I am a serious advocate for it.  After all, I think most would agree that the fee discussion has been a very positive movement.  But it never has been and never will be the primary determinant of investor success.  It’s not even close.

My concern is that because fee-consciousness is dominating discussions in public forums, it has, as a result, become a significant distraction from what the three core determinants of investor and retirement success actually are.  That is for most people:

  • Putting enough away.
  • Owning a primarily equity portfolio that you stick with through thick and thin.
  • Giving this portfolio enough time to grow.

A number that gets thrown around a lot is that only 5% of people are financially independent at age 65.  Whether or not this number is accurate within even 20 percentage points is almost irrelevant because the number is so staggeringly low.

And the primary reason that so few Americans do not have enough to retire doesn’t have anything to do with whether they used index funds or actively managed mutual funds.  They don’t have enough money because they didn’t put enough away, made behavioral errors, and didn’t start soon enough.

And I think the financial industry as a whole is doing investors a disservice by being a significant contributor to the distraction.  If the industry truly wants what’s best for investors, then shifting focus to what will really make a difference would be a good start.

At the end of the day, it is our behavior that will determine whether we make it to financial independence.  We know intuitively that saving more has to be a significant part of the equation.  And I’ll submit that owning primarily equities and starting earlier require a little more coaching, but their significance cannot be understated.

Whether the low-fee advocates (myself included) like it or not, the fee discussion is has become the panem of retirement planning.  So, while investment fees are certainly an important factor with regard to portfolio management, don’t let it become a distraction from the primary determinants of long-term financial success.

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