The landscape of investing has undergone a seismic shift, with the advent of commission-free trading and low-cost ETFs. While this has empowered retail investors, it has also introduced new challenges. Fees have been significantly reduced, but investors now face less visible but equally harmful costs associated with increased risk.
Vanguard founder John Bogle's "cost matters hypothesis" (CMH) was based on the mathematical truth that the sum of all active portfolios equals the market portfolio. From this it follows that the average return on all active portfolios must equal the market return, minus the fees charged by active investment managers. This may have been the single most powerful argument driving the relentless growth of indexing over the past 30 years. However, now that trading and investment fees have gotten close to zero, the CMH has lost its power to direct investors toward low cost, diversified index investing.
