Investing is like grocery shopping (if you have a guide)
The picture above is of my three year old shopping at Trader Joe’s. She loves it. You can see the confidence and swagger in her face. Why is that?
- She has done this before
- I am with her
- Payment and pricing are simple (they give stickers too)
- She knows which products have been commoditized (milk,eggs,water etc)
Let’s go back to number ‘4’ on the list as it is critical to realize this truth when purchasing financial products. When you walk into the ‘marketplace’ of financial products, if you do not realize that the products (mutual funds, etfs) have been commoditized,(they provide access to the same stocks/bonds) you will be distracted by marketing and grossly overpay. How much will you overpay? Well........
At a gas station, if you believe gasoline from Chevron is better than Shell, and are willing to pay more for it, (which you shouldn’t) it is usually a .10 a gallon error. If you believe bottled water from one company is superior to another, you may overpay by a few bucks a case. If you believe that expensive, actively traded mutual funds are superior to index funds, you may pay……... 25 times as much!!! How could this be? Mutual funds are priced using a percentage, and we are not used to seeing this pricing structure in our day to day lives.
You should treat shopping for mutual funds the same way you treat buying any other commoditized product and ask this question: Who has the best price? Or said in mutual fund language: Which fund has the lowest expense ratio?
I teach my clients how to do this and I love watching their investing confidence soar!