Bridge over ocean
1 March 2016 Financial Analysts Journal Volume 72, Issue 2

Fees Eat Diversification’s Lunch

  1. William W. Jennings, CFA
  2. Brian C. Payne

Although diversification is often spoken of as the only free lunch in investing, the authors show that it is not free and that it must be considered in light of its costs. They also show that fees on diversifying asset classes are high relative to their risk-adjusted diversification benefit, with the more exotic asset classes carrying higher price tags. Because there is meaningful cross-sectional variation, fees need to be considered when making strategic asset allocation decisions.

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