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> We’d like to see new services that make it possible to invest in super low-cost index funds. Sorry, this is not the right problem in financial services. Com

by maxcan 12y ago

> We’d like to see new services that make it possible to invest in super low-cost index funds. Sorry, this is not the right problem in financial services. Companies like Vanguard are already doing a great job of this and the costs are extremely low. Its a commodity product with razor thin margins that actually serves the needs of its customers well. Maybe there's a marketing issue where they aren't educating enough people, but that's not a technology problem. As an alternative: Lower the Costs to IPO, disrupt Investment Banks Sarbanes-Oxley, minimal competition between investment banks, and heightened SEC scrutiny have made the fixed costs to an IPO astronomical. These days a company, for the most part, cannot IPO for less than a $1 billion raise. This means that the broad public, including those index funds YC loves, is prevented from enjoying any returns at all for younger, high-growth companies. There is room for startups to disrupt part or all of the process. It would be capital intensive and hard as hell. But, you're not looking for easy right?

foobarqux 12y ago
IPOs are sales problems, which require high touch interaction and networking. They are also dangerous to get wrong which is why companies pay high fees to do them. Remember too that Google got burnt by trying to avoid the sales process entirely.
- deleted 12y ago
  [deleted]
- justincormack 12y ago
  No, think beyond how they are now. For a start it is a high risk event because it is a big event, mainly because of the sales, it could be sold gradually. Also more data would mean that valuation was easier.
  - foobarqux 12y ago
    Selling gradually doesn't do anything and makes the entire process far more complicated and time consuming, as well as potentially pissing off investors. As for data, it isn't something that has been lacking. Moreover, IPOs aren't priced according to valuation (though sometimes bankers reverse engineer a valuation to satisfy a price).
  - jeffreyrogers 12y ago
    Warren Buffett wrote a letter to potential sellers of business that he (meaning Berkshire Hathaway) was interested in buying. It should be easy to find as I think it is reprinted in one of Berkshire's annual reports. The basic idea is this: it's easy to make mistakes in business. As a startup or business in general you made many mistakes over the years that you've had to learn from and bounce back from in order to build you business into the success it currently is. You've earned this competence through your mistakes, and these mistakes cost you at the time you made them. Most businesses only get sold once (acquisition or IPO), so you want to go to the people who know what they're doing when you go to sell your business. For all the shit investment bankers get, they are very good at their jobs.
theuri 12y ago
Hey Max - Agreed - low cost index funds are a dime a dozen. Even "hot" startups like WealthFront / Betterment are a waste of money - you can spend a minute on the site, get their recommendation, hop over to Vanguard and carry it out yourself (and save thousands). Just send yourself a reminder to rebalance once a year and you're done. The biggest driver in building wealth, from our experience and that of working at Guide Financial, is using behavioral finance to automatically accumulate more assets over time - makes orders of magnitudes bigger impact than low costs/tax harvesting/etc
- zak_mc_kracken 12y ago
  > using behavioral finance to automatically accumulate more assets over time Can you explain what that means?
  - maxcan 12y ago
    I believe that he's referring to sweep accounts and save-by-default instruments that have a pretty established track record of improving savings rates.
tpeng 12y ago
The index fund is the greatest investing technology ever invented. The under-adoption of this technology is a behavioral problem. The solution definitely isn't additional layers of asset allocators taking fees on top of this. I'm kind of confused by what Sam is talking about in the RFS about enabling lower cost index fund investing. VFINX has a minimum initial investment of $3,000 and minimum additional investment of $100. At 17 bps that's literally $5/yr. on the Vanguard S&P 500 fund. You are basically talking about a nominal cost to service accounts (send statements, support, backoffice, etc). It would be interesting to think about how technology can lower these costs, but cost isn't preventing anyone from participating.
walshemj 12y ago
That is a solved problem and has been for well over a hundred years the F&C investment trust started in 1868! And there are plenty of very low cost index trackers. For a VC to make this sort of request is troubling as it indicates that they have very little knowledge on how investing works.

by maxcan 12y ago

foobarqux 12y ago

IPOs are sales problems, which require high touch interaction and networking. They are also dangerous to get wrong which is why companies pay high fees to do them. Remember too that Google got burnt by trying to avoid the sales process entirely.

deleted 12y ago
[deleted]
justincormack 12y ago
No, think beyond how they are now. For a start it is a high risk event because it is a big event, mainly because of the sales, it could be sold gradually. Also more data would mean that valuation was easier.
- foobarqux 12y ago
  Selling gradually doesn't do anything and makes the entire process far more complicated and time consuming, as well as potentially pissing off investors. As for data, it isn't something that has been lacking. Moreover, IPOs aren't priced according to valuation (though sometimes bankers reverse engineer a valuation to satisfy a price).
- jeffreyrogers 12y ago
  Warren Buffett wrote a letter to potential sellers of business that he (meaning Berkshire Hathaway) was interested in buying. It should be easy to find as I think it is reprinted in one of Berkshire's annual reports. The basic idea is this: it's easy to make mistakes in business. As a startup or business in general you made many mistakes over the years that you've had to learn from and bounce back from in order to build you business into the success it currently is. You've earned this competence through your mistakes, and these mistakes cost you at the time you made them. Most businesses only get sold once (acquisition or IPO), so you want to go to the people who know what they're doing when you go to sell your business. For all the shit investment bankers get, they are very good at their jobs.

theuri 12y ago

Hey Max - Agreed - low cost index funds are a dime a dozen. Even "hot" startups like WealthFront / Betterment are a waste of money - you can spend a minute on the site, get their recommendation, hop over to Vanguard and carry it out yourself (and save thousands). Just send yourself a reminder to rebalance once a year and you're done. The biggest driver in building wealth, from our experience and that of working at Guide Financial, is using behavioral finance to automatically accumulate more assets over time - makes orders of magnitudes bigger impact than low costs/tax harvesting/etc

zak_mc_kracken 12y ago
> using behavioral finance to automatically accumulate more assets over time Can you explain what that means?
- maxcan 12y ago
  I believe that he's referring to sweep accounts and save-by-default instruments that have a pretty established track record of improving savings rates.

tpeng 12y ago

The index fund is the greatest investing technology ever invented. The under-adoption of this technology is a behavioral problem. The solution definitely isn't additional layers of asset allocators taking fees on top of this. I'm kind of confused by what Sam is talking about in the RFS about enabling lower cost index fund investing. VFINX has a minimum initial investment of $3,000 and minimum additional investment of $100. At 17 bps that's literally $5/yr. on the Vanguard S&P 500 fund. You are basically talking about a nominal cost to service accounts (send statements, support, backoffice, etc). It would be interesting to think about how technology can lower these costs, but cost isn't preventing anyone from participating.

walshemj 12y ago

That is a solved problem and has been for well over a hundred years the F&C investment trust started in 1868! And there are plenty of very low cost index trackers. For a VC to make this sort of request is troubling as it indicates that they have very little knowledge on how investing works.