Finny logo
Dibs:
Dibs:
0

🌄 ETF fees on the rise

July 20, 2021 Sign up
TOGETHER WITH Finny

Good day. Can you guess how much the US collectively spends a year on electricity that it's not really using? a) $6 billion, b) $13 billion, c) $19 billion. Check out the answer in the "Trending" section below. 

  • Have ETFs fees hit rock bottom?
  • Just a trend, or are meme stocks here to stay?
  • Have these money conversations if you want a healthy relationship

INVESTING

Have ETFs fees hit rock bottom?

The finance industry thrives on the creativity of its aristocrats. We live for creating countless forms of investment vehicles that hold any number of different underlying equities within them, and it’s almost become like an art form of sorts, or a competition to see whether iShares can paint a prettier ETF than Vanguard. 

All of these investment-oriented creations share one thing in common though: the goal to make a profit both for its investors and its curators. Most actively managed funds cost money to operate, even if it’s just administrative-type expenses. 

This cost has been translated to investors as what’s known as an expense ratio, and although we’ve been in a bit of a low-priced goldilocks zone for this rate over the last decade, trends indicate that a reversal could be underway.

What is an expense ratio?

An expense ratio is a fee charged annually to investors of a fund. Think of it as an upkeep fee for maintaining your investments, and the more actively managed it is, the higher the fee is likely to be. Take Vanguard’s very passive $VOO fund that tracks the S&P 500 with an expense ratio of just 0.03%, and compare that with the more active funds like $MINT and $ARKK that have fees 12-25x higher at 0.36% and 0.75%, respectively. 

That Vanguard ETF will run you $3 for every $10,000 invested, whereas Ark’s fund will cost you $75.

So what’s changed?

  • Some of the most popular ETFs on the market have expense ratios of less than one-tenth of a percentage point, and some are even sitting at 0.00% like $SFY. That’s great for us as investors, but probably not so ideal or sustainable for the brokerage firms in the long-term as market conditions fluctuate. 
  • This year alone, investors have already allotted over $559 billion into ETFs, which is almost double the $229 billion we’d seen at this point last year. According to Adam Smith and his very popular invisible hand, when demand rises, prices follow, especially if supply lags behind. 
  • With an obvious rise in demand and an exponential increase in new investors, the need for fund managers to be competitive and extremely low-cost has decreased, and we’ve begun to see the expense ratios stop falling for the first time in a long time. 
  • Many industry professionals think that the race to the bottom on ETF fees has come to a close and that eventually, there’s nowhere to go but up. 

Take this to go

There’s no need to panic, expense ratios usually take months or years to move. And even if they do begin to rise— unless we see an astronomical and sudden uptick in expense ratios—this shouldn’t be detrimental to your investment strategy, whether it’s long or short-game-focused.

If anything, take this update with a grain of salt and use it to glean some more insight into expense ratios and how the interior of this industry works, and maybe shop around for some alternatives too while you do that math.

INVESTING

Just a trend, or are meme stocks here to stay?

If you look at it from a bigger perspective, everything is a trend. Even the Roman Empire was a trend too, but just like...a really long one that wanted to control everything from Mesopotamia to Spain. You can Google that later. 

Meme stocks though, are we ever going to grow tired of them? After being introduced to us under the guise of "overthrowing the short-sellers" back in January, this trend has endured a lot of pain and choppy waters in the market ever since but nevertheless seems to still be alive.

What’s the idea?

A collective belief in something can bring it to life, and meme stocks, just like money, are a result of a belief. Frank Durgin is responsible for formalizing this notion by way of what he called the “Tinkerbell Effect” which serves to describe things that exist because, well, people believe that they do. 

Where there’s a will, there’s a way, and that couldn’t be more true than with meme stocks. Qualitatively speaking, there have been at least 6-10 different stocks that could be classified as “meme stocks” that have gone viral, and likely many more that were scouted out to a lesser degree.

Five of these stocks have combined for returns of 70x from their valley to their peak in 2021 alone, with two of them clocking returns over 20x on their own ($GME, $AMC). While this is nothing unheard of for the derivatives or OTC markets by any means, it’s unprecedented and abnormal for your regular Nasdaq companies that are questionable in value at best.

So are they here to stay?

In short, probably, but it may not be $GME to the moon all the time. Meme stocks have created a new kind of subculture within finance that was relegated to lurking in the corners of the room before, whereas now they’re front and center. 

This is a new, unorthodox strategy that will have varying degrees of returns, both positive and negative. Nevertheless, with the great migration of retail traders into the world of investing over this last year, meme stocks are probably here to stay... in some form or another.

SPONSORED BY VUORI

A new perspective on performance apparel

One Short. Every Sport. The only shorts to run, hike, train, travel, and chill in are finally here. 

The Kore Shorts from Vuori have a classic athletic fit, falling just above the knee with an anywhere and everywhere versatility. 

Vuori’s mission is to create quality products for your pursuit of a happy life; empowering deeper connections with fitness, nature, creativity, and community. 

Check out The Kore Shorts and the end of season sale happening right now!

MONEY & RELATIONSHIPS

Have these money conversations if you want a healthy relationship

We like to think that love comes first, and money falls in line as a secondary priority. While this is a great sentiment and an honorable basis to start with, finances are still important for maintaining a long-term healthy relationship with your partner. 

In other words, it may not be the reason your partner left you for the college experience, but it is still one of the leading factors of divorce in the country today.

Here are a few financial things you should discuss openly with each other.

  • Talk about debt: Anyone you could end up being with for the foreseeable future should probably be aware of how much debt you have in your name, and anyone who makes you uncomfortable being transparent about that could be a red flag. A study done in 2019 showed that 4/10 student loan borrowers said their debt had an impact on their relationship, and it’s easy to understand why. 
  • Talk about your credit: Learning about your partner’s credit history is kind of like knowing their life story,  financially speaking. A credit score can tell you a lot about someone’s money habits, and whether or not they’ve responsibly managed their debts in the past. Don’t break up with them for having a credit score of 580, just talk about it. 
  • Discuss your financial goals and money philosophy: This is perhaps the biggest one, because the overarching maxims and perspectives that are interwoven into you and your partner’s philosophies about life and money will play a role in every financial decision made. This is a foundational point in financial health, but beliefs can also change and are malleable, so always give them a chance as long as they’re not dogmatic about something you feel uncomfortable with, like taking out HELOCs to pay for vacations...

ASHU'S CORPORATE COLOR

Today's Movers & Shakers

  • Nasdaq (+1%) after the exchange operator decided to spin out its private markets division in partnership with Citi, Morgan Stanley and Goldman Sachs
  • Halliburton (+2%) after the firm posted higher than expected profits as oil rebounded
  • IBM (+3.5%) as the firm topped revenue and profit estimates
  • Cardinal Health (+4.5%), McKesson (+5%) and J&J (0.5%) as a result of a potential $26 bn opioid settlement between the firms and US states
  • Comcast and ViacomCBS (+1.3%) are higher on reports that the two media firms are thinking of a streaming partnership
  • Crown Holdings (+4%), a packaging maker, beat the street on earnings and revenue numbers

This commentary is as of 9:02 am EDT.

✨ TRENDING ON FINNY & BEYOND

  • ANSWER: the US spends $19 billion a year for electricity it's not really using. Unplug these appliances that hike up your electricity bill (Yahoo Finance)
  • This great freebie from Google stops annoying robocalls and gives you a second phone number(Fox)
  • Finny lesson of the day. Speaking of saving on bills, perhaps you'll learn a new tip or two to lower your energy bill by taking this quick quiz: 

Finny is a personal finance education start-up offering free, game-based personalized financial education, a supportive discussion forum, and simple stock and fund tools (aka Finnyvest).  Our mission is to make learning about all things money fun and easy! 

The Gist is Finny's newsletter to our community members who are looking to make and save more money, protect their finances and be their own bosses! Finny does not offer investment or stock advice. The Gist is sent twice a week (Tues & Thurs). The editorial team: Austin Payne and Chihee Kim. Thanks to Ashu Singh for Today's Movers & Shakers.

*Sponsors or advertisers offer unique consumer services.  We're thankful for their sponsorship to enable Finny to offer free financial education. Here's our advertiser disclosure

If you have any feedback for us or are interested in sponsoring The Gist, please send us an email to feedback@askfinny.com.

Copyright © Finny 2021. All rights reserved.
736 Paloma Ave, Burlingame CA 94010
Follow Us