December 21, 2020

How AuBit removes annual fees from finance

“Wall street makes $650bn a year in fees, which means investors lose $650bn a year in fees. It’s a system that’s crying out for change.”

— Jack Bogle, legendary founder of Vanguard

Most investors wildly underestimate the impact of fees on their investment performance. 1 or 2% per year might not sound like much, but do the maths and you’ll quickly see that, over your investment life-span, you could miss out on more than half your entire investment portfolio due only to the fees you pay.

If you’re familiar with AuBit, you’ll know that AuBit’s network effect offers better total returns on the world’s top investment products with no extra risk. 

Better returns with no extra risk? That sounds expensive, right? Well, unlike most asset management platforms, AuBit actually charges zero ongoing fees on most of its products.

In this article, you’ll discover the dramatic impact fees have on investment performance and how AuBit is removing annual fees for user benefit.

Fees Matter More Than You Think

Like it or not, the stock market is a zero-sum game. On average, for one investor to get better-than-benchmark returns, another investor — or investors — must get less-than-benchmark returns.

An example:

In its almost 100-year existence, the S&P 500 — the stock market index of 500 public companies in the US — has averaged an annual return of approximately 10%. 

Some investors will have earned greater than 10% annual return, others will have earned less. That is what gives us the average. Given that fact, it would have been impossible for every investor to have earned more than the average 10% annual return, because 10% would no longer have been the average. 

As a matter of fact, somewhere around 80-85% of actively managed stock portfolios fail to beat the market benchmark. And when you consider that you’ll pay 1-2% in fees each year, your average return could look much worse.

In his book ‘The little book of common sense investing’, Jack Bogle explains the importance of fee reduction through a parable about the Gotrock family. It’s the same parable that Warren Buffet shared at the 2005 Berkshire Hathaway meeting, so you know it’s good. 

The Gotrock Family Parable

Once upon a time, a wealthy family named the Gotrocks owned 100% of every stock in the United States. 

Each year they reaped the full rewards of investing: all of the dividends plus all of the earning growth in the value of their stocks. Each family member grew wealthier at the same pace and all was harmonious as their investments compounded over decades.

But after a while, a few ‘helpers’ arrived on the scene. They tried to persuade some of the Gotrock cousins to sell some of their shares to family members and buy others from them. These ‘helpers’ handled the transactions and took their commissions. Now, the ownership of stocks in the Gotrock family was rearranged and — to their shock — the growth of their wealth began to slow. 

“How could this be?” asked one of the cousins.

A wise old uncle replied, “all that money you’ve paid helpers comes directly out of our family’s total earnings and dividends. Get rid of all of them and our family will again reap 100% of the returns.” 

The wise old uncle was right.

Just look at the chart below that shows the tyranny of lagging behind the market returns by just 2% per year — what many fund managers charge in annual fees.

Over 40 years, just 2% per year paid in fees reduces the investor’s
share of the average market return by more than half.

After just 10 years of paying 2% fees, by lagging behind average market returns, you’d lose 17% of what you would otherwise have earned. Over 20 years you’d lose almost one-third of your entire return. And after 40 years, you’d lose 52% of your potential average market returns — meaning you assume all of the risk and get less than half the reward.

These aren’t just numbers picked out of the sky, we’re talking about people’s retirement: the source of income that keeps people living and free in later years — and their financial legacy to heirs. Here’s an example…

Grandma Jane’s Retirement

Grandma Jane has set aside $10,000 per year, every year, for the last 30. At 8% annual growth, her $300,000 capital becomes $1,132,832 — a gain of $832,832. That’s pretty good. 

But what if Grandma Jane were to pay 2% fees per year? 

Well, at 6% annual growth, the total becomes $790,582. That’s still a gain of $490,582, but it is 59% less investment gains and 30% less retirement savings than she would otherwise have had. 

Just 2% per year in fees over a typical retirement savings period costs Grandma Jane
almost one-third of her entire retirement pot compared to the market benchmark

That could mean a very different retirement. It could mean downsizing, less holidays, and not doing the things she promised herself she always would later in life. God forbid she got ill and required care.

But, with AuBit, Grandma Jane could get better total returns on her investments and pay zero ongoing platform fees. That’s because AuBit is the first in the world to bring the power of the network effect to finance. 

AuBit removes ongoing fees
thanks to blockchain technology

The AuBit Edge Protocol is the tech that makes AuBit work. Built using blockchain technology, it automates all trades, transactions, and revenue distribution. It’s this that makes it possible for AuBit to redistribute 80% of the fees back to users.

It is the automation that’s the key. Usually, a transaction may have to pass through multiple different financial institutions, with middle men and their fees every step of the way.

By automating the process entirely, AuBit reduces the costs required to maintain the network and lets administrators focus on higher-value work. And because the tech is built on blockchain, verification is automated and scalable — meaning it’s even more secure than normal. 

That means AuBit doesn’t need to charge annual fees on the vast majority of products, so all the gains you make are yours to keep.

Would you like better total returns on the world’s top
investment products with no extra risk and no annual fees?

Visit aubit.io now to sign up for the waiting list and be one of
the first in the world to enjoy network-enhanced returns.

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