Index funds: 15 minutes of Excel vs. robo-advisor fees

Index funds: fifteen minutes of Excel vs. the robo-advisor

For someone with €10,000 or €12,000 sitting idle and the idea of contributing €200 a month, the first decision isn't which index to buy. It's who presses the button each quarter. The usual starting point is an initial contribution of that size and then a monthly payment, with two paths on the table: a robo-advisor like Indexa or doing it yourself in MyInvestor with 85% MSCI World and 15% emerging markets. The answer that prevails is as segarro as it is blunt: lower fees.

Is it worth paying a robo-advisor?

No, if you're willing to spend fifteen minutes. That's the argument repeated: rebalancing and allocating contributions can be solved with simple mathematical formulas in a spreadsheet, and then you enter the orders in the broker. Fifteen minutes, calmly, and move on. Paying for that is giving away money in exchange for convenience.

The counterargument is practical, not about price: those who know they can leave it untouched for years prefer to automate and forget. No rebalancing, no decisions, no checking. Convenience comes at a cost, and everyone puts their own price on laziness.

The cost benchmark on the table is a company pension plan indexed to the Vanguard Total Stock Market Index Fund Admiral Shares with a fee of 0.27%. Its recent track record is a rollercoaster: -7.23% in 2018, +28.49% in 2019, +4.93% in 2020, +26.38% in 2021 and -12.69% in 2022. Those who look only at the last figure get a scare; those who look at all five see the whole picture.

Accumulation or distribution: the calculation that decides for the tax office

An accumulating fund doesn't distribute dividends: it reinvests them and doesn't pass through your pocket. A distributing fund pays them out, and that's where income tax comes in, taxing those returns at rates ranging from 19% to 26%. Every time you collect, you lose a slice along the way.

The calculation circulating is eloquent: €2,500 annually at 10%, over twenty years, in an accumulating vehicle versus a distributing one. The difference in favour of the former is around €34,000. Working it out in detail, with the tax bill subtracted each year, it still pays off. When you redeem, you pay the same, but the capital had been working in full meanwhile.

The risk that doesn't appear in the brochures

The reasonable doubt isn't the fee, but the scenario. Those looking for critical analysis of index investing find hardly anything, and that unanimity is suspicious. Some recall that being indexed to the Ibex between 2000 and 2010 meant a lost decade, and that buying the Nikkei in the eighties didn't end well either.

The scenario being sketched is a 40% crash, and with it a purge of converts: the same ones who today insist on contributing more when everything falls will be the majority when the market tests their patience. There are already those who got in and are still in the red, doubting with a -10% loss. A populariser specialising in dividend portfolios rails against index marketing on YouTube; his video was enough for some to discard the strategy and for others to remember that he doesn't publish his own results either.

In the end the recipe boils down to three things: diversify by country and sector, an accumulating fund and 20 years ahead. The hard part isn't choosing the index. It's not selling it at the worst moment.

How many of those who are clear about it today will keep buying when the index drops -40%?