Investors need to understand not only the magic of compounding long-term returns, but the tyranny of compounding costs; costs that ultimately overwhelm that magic.
earlier—investments usually perform better than investors.
The first agency society developed in our business culture two centuries ago. Beginning with the Industrial Revolution, the ownership of corporations shifted from founding families and entrepreneurs to public shareholders. But corporate managers—agents, entrusted to place the interests of shareholders first—far too often took advantage of their agency, placing their own interests in the pre-eminent position over the interests of their principals. The second agency society, unprecedented in history, began to develop with the rise of our financial corporations a half-century ago. Giant aggregations...
it is reasonable to assume that trading activity by funds adds costs of 0.5 percent to 1.0 percent to the dilution inflicted on returns by the expense ratio. So the all-in-costs of fund investing (excluding sales loads, which are generally waived for large retirement accounts) can run from, say, 1.5 percent to 2.3 percent per year.
Note: Spoke fund is much cheaper