The big difference between products and assets is cost

Products are.... created by the financial services industry, usually targeted at the retail investor (you and me). They exist to make things easier for the consumer to access a wide choice of assets. Ironically, this very factor makes them hard to assess. Products are created by Providers.

They are difficult to evaluate because.... are investing both in the assets underlying the product and in the legal and administrative mechanisms layered on top of the assets. This brings additional issues of;

  • risk (do you know how safe is the vehicle investing on your behalf?);
  • management control (how do you know the managers of your product will continue to do what you thought they promised to do?);
  • liquidity (on what terms can you sell and can those terms be altered after you have invested?);
  • transparency (how do you know what's going on and/or how do you find out any of the above?);
  • and, above all, added costs.

Our advice

Conventional advice, particularly to the small investor, is to buy products because buying assets directly is dangerous.

Our advice is more nuanced. It is hard in the early days of investing to achieve diversification without a simple low-cost tracker product. But it is extremely easy these days for the small saver to buy assets directly, and in the medium-term it pays all investors to learn how to avoid fees. The young investor should learn, maybe over a number of years, to buy a spread of individual assets to reduce his early essential reliance on simple products and protect his portfolio from cost erosion. It is essential not to be dragged down the route of more complicated products with high fees. Most are completely unsuitable for any but the sophisticated investor.