Endowments maturing today have, in many cases, barely matched inflation over the past 25 years, and fallen well short of the money savers would have made if the cash was put, instead, into a low-cost "tracker" matching the gains on the FTSE.
Invest $100,000 for 30 years at 6%, with annual charges of 0.25%, and your portfolio will be worth almost $535,000; if the annual charges are 1.5%, your pot will grow to only $375,000.Even great investors think that low-cost tracker funds make sense.
In any case, many big funds are low-cost trackers such as Vanguard's 500 index fund, which allows retail investors to get a broad exposure to the stockmarket for fees of just 0.17% a year.
Low-cost trackers did not have sufficient fees to reward the advisers, so tended not to be recommended.The best way to insure advisers' independence is for them to be paid by the client, not the fund.
Just as they should bear in mind Mr Fama's research and put the bulk of their portfolios in low-cost trackers, they should be wary of stockmarkets when they look expensive relative to the long-term trend in profits.
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An option for a more cautious, passive approach might be a low-cost equity tracker, such as the HSBC FTSE All Share index fund.
Pitt-Watson admits that for his own savings he has put nearly the whole lot in low-cost index tracker funds.
L&G, in contrast, has powered ahead in the field of investment management, where its low-cost index tracker business has helped create what may this year become the UK's biggest player in the field.
