Some time ago, I wrote an article about why the fee structure is not suitable for Sharesies customers.
It is very clear from the numbers that Sharesies has a lot of beginner investors. They have about $500 million under management and 166,000 customers, for an average of $3,000 per investor.
As a comparison, one of their competitors InvestNow, has the same amount of funds under management, but only 26,000 users. An average of $19,000 each.
Let’s take the Sharesies average of $3,000 and invest it in the US500 fund. We will assume 0% returns for the next year. How much did they pay in fees? $40.20. This equates to 1.34% in fees for a fund that costs just 0.34% in management fees. 1.34% is greater than many active funds. And this is the average Sharesies customer. There will be many with even less invested and paying an even greater percentage in fees. It’s hard to make good returns when fees take up such a high percentage of your investment.
But there is another reason why I don’t see Sharesies as a responsible lender for beginners.
Sharesies sorting function
They deliberately sort their funds and individual stocks on their search page by returns. Highest recent price changes first are the default.
One of worst performing investment behaviours is chasing recent winners. Relying on historic performance for a primary measure for quality is fraught with danger.
The top stock pickers in the last few years are unlikely to be the top stock pickers for the next 3 years. The top stocks for the last 3 years are unlikely to be the top performing stocks for the next 3 years. By the time a stock is performing well and showing up as a top performer, you have already missed out on most of the gains. Chasing performance is one of the main reasons so many investors perform far worse than the index.
Even worse than investors chasing performance, is beginners chasing performance. Professionals rarely get it right, the chances of beginners consistently getting it right are even worse.
The other part of this that is so wrong is the period of performance measurement is so short. For funds it is based on last year’s performance, and for stocks it is 1 day! Stocks are a long term investment, so measuring them for anything less than 10 years is a waste of time and unreliable.
One recent example is when Blackwell Global Limited’s share price rose from 1.6c to 9.3c between July 6 and July 23 this year as a result of the firm misreporting its net tangible assets. Most people had never even heard of this company. And there’s good reason. Their financials are terrible. Yet, all of a sudden, Sharesies investors were noticing them because they were the “best performing company” on their search function. Investors poured into this fund for no other reason than it was the best performing stock according to the Sharesies algorithm. Not because it had good management, financials, or prospects. These essential performance metrics were not even considered.
Sharesies investors are making sub optimal decisions based on this default search function. Anytime you try to get rich quick with investing, if you are doing it for long enough, you will end up far worse off than buy and hold and staying the course.
Final Thoughts
With so many investors with such low investment balances, there are clearly a lot of beginners using Sharesies. And as I have said, if it means they wouldn’t be investing otherwise, then maybe just being invested is a good thing. But I think beginner investors could be doing so much better. It seems Sharesies are not acting as a responsible provider of investment products and looking out for the best interests of their investors. Their fees and fund sorting are not beginner friendly.
The best thing for most investors is to pick a well-diversified portfolio of funds, sometimes you only need two or three, and be done with it. Get on with your life and let time do the lifting. The push notifications, sorting functions, active Facebook groups, and encouraging language reinforcement all encourage constant checking in. Constant checking in leads to tinkering with your portfolio. Tinkering with your portfolio leads to sub standard performance.
Ironically, Sharesies is far more suitable for advanced investors who aren’t tempted to always check in and have higher investment balances.
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The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here