Costs directly influence the performance of your portfolio, so they should always be kept in mind. Whether you realize it or not, many of the investment decisions you make will affect the costs of your portfolio. Some of these decisions are:
- Should I buy individual stocks and bonds, or mutual funds?
- Do I use commissioned mutual funds or no-load funds?
- Should I buy funds with high internal expenses (expense ratio) or low internal expenses?
- Do I use actively managed funds (funds that actively trade to beat a benchmark) or index funds (passively track an index)?
- Should turnover, which could lead to more taxes, be a consideration?
- Do I transact business at a discount brokerage or a full-service brokerage?
- How often should I trade?
- When should I rebalance?
- Should I hire an advisor?
Investing is not free, but Blue Water is dedicated to keeping your costs low.
- We use no-load, low-cost, institutional mutual funds. The funds we use typically hold hundreds to thousands of stocks. We believe this is a more cost-efficient way of investing than purchasing individual stocks. These funds are not subject to commissions and have very low expense ratios.
- We use an "asset class" investment approach, which is different than indexing and active management. Index funds strictly adhere to a certain index and are known to trade only when that underlying index changes. Active managers trade much more often. Our asset-class approach falls in between these two, but closer to indexing. We use a buy-and-hold-approach and rebalance only when necessary. This minimizes transaction costs.
- The funds we use have low turnover because they typically have an internal buy-and-hold approach as well. Low turnover protects principal because the fund is not continuously subject to bid-ask spreads (the price difference of buying versus selling) like many actively managed mutual funds. Lower turnover also has been shown to reduce taxable distributions.
- We use a discount brokerage firm as our custodian, which helps keep our clients' trading costs down.
- The costs of a fully-allocated portfolio are extremely low. The expense ratios of the portfolios we construct typically range from 0.25% - 0.42% depending on the stock-to-bond ratio. Contrast that to 1.45%, which is the approximate expense ratio of the average equity mutual fund.
- Our investment management advisory fees are very competitive. Although our fees do add to the expense of investing, we feel our expertise, discipline, institutional fund access, and ongoing management more than pay for themselves. See our Fees page to get an estimate of your total investing costs.