Investment costs should be a key consideration in any long-term investment strategy. Whatever the financial service industry deducts for administration, advice, commission, trading, investment management or performance directly reduces the investor’s return.

With no guarantee, or even reasonable prospect, that higher fees will secure a higher return the only solution would be to keep fees as low as possible.


This is according to Steven Nathan, CEO of 10X Investments, who says that the maths is even more compelling. “Fees compound in an unexpected and dramatic manner, and have a disproportionate impact on the long-term savings outcome. John Bogle, the pioneer of index investing, calls it the ‘tyranny of compounding costs’.

The mix of growth and defensive assets in your portfolio is your most critical investment decision, next to fees. Nathan explains that the mix should be risk-appropriate for your time horizon. “As a long-term investor you should have high exposure to growth assets (equities) as these habitually deliver the highest return, despite intermittent corrections. Once your time horizon shortens to less than five years, increase your exposure to bonds and cash, for a lower, but more secure return. Alternatively, choose a life-stage fund that adjusts your asset mix automatically to your investment time horizon.”

Investment style

Your chosen investment style should also be risk-appropriate for your time horizon. As a goal-orientated investor, you should hedge your down-side risk as the cost of missing your goal far exceeds the benefits of surpassing it.

Broadly speaking, Nathan says that there are two investment styles: active management and indexing. “Index managers seek to earn the market return by replicating the composition of the market. Active managers aim to beat this return by picking stocks they believe will do better.”

Nathan says that with indexing you avoid the risk of choosing a poorly-performing fund, or chasing past performance. “The cost of indexing is also much lower than active investing, which means you earn a larger share of the market return. Yes, you could do better with an actively-managed fund but the odds are against you: only some 20% tend to outperform low cost index funds over time.”


If you spread your money across different investments that are not correlated (i.e. that usually don’t move in tandem), you can reduce the overall riskiness (or volatility) of your portfolio. This protects you from big (possibly goal-defeating) losses; coupled with regular rebalancing, it can even improve your overall portfolio return.

You should diversify across asset classes, but also geographically, by business risk, by factor risk, by currency and by duration (investment time horizon).


You need to consider all the above factors in setting your long-term investment strategy. The question is, has your service provider brought them to your attention? Have they pointed out the impact of fees? Do they disclose returns before and after fees? Have they explained the different investments styles? Have they explained the risk underlying your asset mix?

All relationships require an element of trust, and, if your provider is not upfront on these points, then they may not be your ideal partner.


Even informed investors succumb to their emotions and change course, to follow their ‘gut’ instincts. Invariably, the result is regret. John Rekenthaler, commenting for Morningstar on an investment experiment concludes that “the best results are likely to come from thinking hard when initially forming the plan. After that, one should think much less, or perhaps not at all. Investors are unlikely to improve matters by adjusting on the fly.”

“In his view, any investment adjustments should be built into the initial plan and then automated, according to pre-established rules. The bottom line, in other words, is that you should incorporate all the matters in your plan, and then, just as importantly, stick to the plan,” says Nathan.

Steven Nathan
CEO, 10X Investments