06 October 2023

At the Money: A New Podcast from Masters in Business

1Frameworks

11Insights

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Frameworks in this episode

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Core-and-Satellite Portfolio

Anchor your portfolio cheaply, then contain speculative bets around the edges

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Insights & moments

The myth-busts, hot takes, explainers, and tools worth keeping.

Myth Buster· 2

Myth Buster03:53

The Expense Ratio Was Only Part of the Old Fund Cost

Historical mutual-fund costs extended beyond the published annual expense ratio. Investors could lose five percent immediately to a sales load, then continue paying annual expenses and trading costs, creating a substantial hurdle before earning a positive return.

Sales loads could consume five percent upfront
Annual expense ratios persisted year after year
Trading costs added another layer
Shelf-space arrangements influenced which products brokers offered

“The expense ratio is year after year. Then there's trading costs on top of that, so it's about two percent plus the five percent load.”
Eric Balchunas · 04:35

“You had to pay the company a fee like some sodas and potato chips due to supermarkets to be on that platform.”
Barry Rittoltz · 04:11

#mutual funds#loads#hidden fees#brokerage

Myth Buster09:40

Nearly Free Funds Do Not Eliminate Asset-Manager Incentives

Ultra-low fund fees make core products less profitable, so large asset managers seek revenue from technology, institutional services, and additional products. Investors should recognize that cheap access may coexist with attempts to upsell more lucrative offerings.

Scale allows firms to spread operating costs
Core index products may generate little direct profit
Technology and institutional services can subsidize low fees
Investors should remain alert to adjacent product sales

“So if you're an investor, know that you might be trying to be upsold on some certain things and that you know it's okay. Just…”
Eric Balchunas · 10:10

“The future of asset management's come with these other ways to do it.”
Eric Balchunas · 10:07

#asset management#upselling#business models#fees

Hot Take· 1

Hot Take01:16

Why Today Is the Golden Age of Investing

Rittoltz argues that individual investors have never enjoyed cheaper or easier market access. Trading, custody, mutual-fund, and ETF costs have fallen while broad global exposure has become available for a fraction of historical prices.

Trading can cost nothing
Custodial fees are close to zero
Fund expenses have fallen sharply
Global diversification can cost less than one-tenth of a percent

“Things have literally never been better for you, the home investor, than they are right now.”
Barry Rittoltz · 01:11

“Now you can own the entire world for less than a tenth of a percent.”
Barry Rittoltz · 01:53

#fees#etfs#market access#investing

Explainer· 5

Explainer00:00

What At the Money Promises Investors

Barry Rittoltz introduces a short weekly podcast focused on practical financial decisions. Planned subjects include portfolio construction, fees, bonds, and investor behavior, with an emphasis on actions rather than theoretical discussion.

Episodes will run about ten minutes
Topics span earning, spending, and investing
The show emphasizes practical financial actions
Portfolio design, fees, bonds, and behavior are recurring themes

“Each week, I'm going to spend about ten minutes or so diving deep into a specific topic that affects you and your money, acquiring it,…”
Barry Rittoltz · 00:02

“These aren't theoretical academic discussions.”
Barry Rittoltz · 00:40

#personal finance#investing#podcasting

Explainer02:17

Low ETF Fees Have Spread Far Beyond Plain Index Funds

Eric Balchunas explains that fee compression now covers bonds, junk bonds, factor strategies, and even active management. Investors can access once-expensive categories for only a few basis points, while many active ETFs now charge below forty basis points.

Broad bond baskets can cost three basis points
Some junk-bond baskets are similarly inexpensive
Value, growth, and dividend strategies can cost below ten basis points
Active managers are entering the lower-cost ETF structure

“I think we're in a utopia. I think this is as good as it ever has been.”
Eric Balchunas · 02:17

“Even active active has come over to the ETF space and a lot of the active funds coming out now are below forty basis points,…”
Eric Balchunas · 02:50

#etfs#bonds#active management#fees

Explainer03:28

How Fee-Based Advice Weakened Fund-Sales Conflicts

The shift from commission-driven brokerage to fee-based fiduciary advice changed product incentives. Advisors paid from client assets have more reason to seek inexpensive funds, whereas the old system rewarded products through loads, shelf-space payments, and recurring distribution fees.

Commission structures encouraged conflicted product selection
Fund loads were paid from client assets
Fee-based advisors benefit from finding lower-cost products
About three quarters of advised assets were described as fee-based

“And that's important because now the advisor is out there looking for the cheapest funds or the best deal for you, whereas in the past…”
Eric Balchunas · 03:36

“That was clearly not a good system, all kinds of conflicts of interest.”
Eric Balchunas · 03:48

#fiduciary#financial advice#conflicts#fees

Explainer05:49

The Internet and Vanguard Combined to Crush Investment Costs

Balchunas presents fee compression as the result of two complementary forces. Vanguard spent decades making index funds extremely cheap, while the internet made costs and weak value propositions easier for consumers and media to expose.

The internet increased fee transparency
Online commentary spread awareness beyond professionals
Vanguard had already reduced index costs before mass internet adoption
Prepared low-cost products benefited when information became widely available

“It's much easier now to see what you're paying, what you know in these charts that show you what you're paying and what you don't…”
Eric Balchunas · 06:08

“So when the Internet hit, Vanguard was completely ready for that moment, and I think the combination of the two proved to cause a sensation.”
Eric Balchunas · 06:29

#vanguard#internet#fee compression#index funds

Explainer06:41

How Vanguard Nudged Advisors Away from Big Brokerages

Because Vanguard would not pay for shelf space, commission-based brokers at large firms often could not offer its products. Advisors who wanted to use Vanguard had an incentive to leave and form registered investment advisers, reinforcing the shift toward fiduciary, fee-based advice.

Vanguard refused to buy distribution shelf space
Commission-based firms restricted access to its funds
Some advisors left large institutions to form RIAs
Large firms later moved toward the RIA model

“You could not buy Vanguard if you worked at a big company, a big bank, and you got a commission based fee because that company,…”
Eric Balchunas · 06:44

“So if you want to do that, you had to leave that big firm and start up in RIA, which is what you are.”
Eric Balchunas · 06:58

#vanguard#rias#advisors#distribution

Story· 1

Story07:52

When Buying a Stock Required a Broker, a Phone, and $75

Rittoltz reconstructs the friction faced by a 1970s investor. Opening an account took time, quotes were difficult to obtain, commissions were fixed and expensive, and market information arrived through delayed newspapers, newsletters, or quarterly services.

Account setup could take days or weeks
Orders had to be placed by telephone
Investors lacked transparent live prices and fees
Newspapers and research services delivered stale information
Even deregulated commissions could be about $75

“On the phone, you had no idea what prices were right, You had no idea what the brokerage fees were there was a minimum they…”
Barry Rittoltz · 08:09

“You would get day old stock prices in the Wall Street Journal only for the big stocks, and weekly in barons you would get week…”
Barry Rittoltz · 08:41

#market history#brokerage#trading costs#information

Takeaway· 2

Takeaway09:05

Stocks Represent Productive Ownership, Not Just Price Action

Balchunas contrasts long-term stock ownership with speculative trading in crypto and options. A stock represents a claim on a company where people work, generate cash flow, and create value, while broad funds let investors own many such businesses cheaply.

Companies create products, cash flow, and economic value
Shareholders own part of those productive businesses
Broad funds bundle many companies into one holding
Fund providers handle dividends and rebalancing

“They create cash flow. People get up and work at these companies and create value. That's what you're investing in you are an owner of…”
Eric Balchunas · 09:18

“And so the idea that you can own all of these companies in one shot for a couple basis points fee and this company you…”
Eric Balchunas · 09:23

#stocks#ownership#compounding#index funds

Takeaway11:33

Use Modern Market Access to Let Equities Compound

Rittoltz closes by urging investors to appreciate the transparency and low costs now available. With fewer frictions and broad access, the remaining challenge is to put suitable long-term capital to work rather than remaining afraid of equities.

Modern investors face lower and more visible costs
Broad market access is easier than in prior decades
Equities can compound capital over long periods
Investor behavior remains important despite improved infrastructure

“There's nothing to fix other than appreciate how great it is to be an investor in the twenty twenties, in the twenty first century, and…”
Barry Rittoltz · 11:53

#equities#compounding#long-term investing#investor behavior