Fire! Run for the exits! Another big bank has entered the carbon credit markets. I bet this is more about EGO than saving trees. It’s a perfect Wall Street creation: offer a way for the elite to offset their private jet wash by scrubbing it clean with carbon credits.
What’s a carbon credit, you ask? It’s basically a way for you to give money to tree owners, for example, to not cut them down, and to save the environment. I’m serious. But you and I know it’s more about “what’s in your wallet?” Or as the Discover card double points rep says: “More money, more money!” The big boys know how to engineer fees.
With ESG investing at full throttle, it’s easy to be distracted by the cocktail party line that this is actually good for the investor. We’ll see. Your Survival Guy’s skeptical. What’s not in doubt is that it’s a way for the big dogs to look good in the Hamptons or on Nantucket while talking about saving Shamu. But come on, is it really saving the planet? More like high fees is the answer.
You know from here, here, and here that the low-cost way of index investing is a loser for the big dog investment firms. The race to zero percent fees turned indexing into a commodity. I’d imagine the talk behind closed doors revolves around keeping low-cost funds open to new investors because (a) they bring in new clients to sell ESG products to and (b) they give firms the voting power needed to try to turn companies like Exxon green. But the real money is in pushing ESG funds and the high fees as investors gobble up the “save the planet” narrative like wild turkeys running aimlessly in the fields.
Stay tuned. Some time down the road, as performance lags, questions are asked, and the prospectus is finally looked at, I’d expect investors will realize that perhaps the expense ratio is outrageous, front and back end loads pop up for certain classes (not the elite of course), and 12-B marketing fees exist all as a drag on shareholder performance. Not that ESG funds need money for marketing as management knows, “This stuff sells itself.”
It’s all wrapped up in a nice package, much like a variable annuity where the salesman’s white glimmering teeth blind one’s ability to think rationally. Then, a crash hits, like we’ve already seen thrice this century, and the banks are hanging on by a thread. What could possibly go wrong?
Action Line: As an investor, especially one saving for, or who’s already in, retirement, you can’t afford to be wrong. You can’t afford to make the big mistake. Investors don’t have a chance against the full-court press sales pitch. Investors are SOLD product, plain and simple. Remember, being wrong is a lot more painful than the fleeting feeling of thinking you’re right. Stay tuned by clicking here to sign up for my free monthly Survive and Thrive newsletter. But only if you’re serious.
E.J. Smith - Your Survival Guy
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