Fees Eat Diversification's Lunch

16 Pages Posted: 28 Dec 2014 Last revised: 31 Mar 2016

See all articles by William W. Jennings

William W. Jennings

U.S. Air Force Academy - Department of Management

Brian Payne

US Air Force Academy

Date Written: June 30, 2015


Diversification is often spoken of as the only free lunch in investing, yet we show that it is not free and is properly considered only in light of its costs. More-exotic asset classes typically come with a higher price tag. We show that fees on diversifying asset classes are high relative to their risk-adjusted diversification benefit. Because there is meaningful cross-sectional variation, fees need to be part of asset mix decisions and strategic asset allocation.

Keywords: investment fees, portfolio choice, asset allocation, diversification, endowment model

JEL Classification: G11, G23, I22, L30

Suggested Citation

Jennings, William W. and Payne, Brian, Fees Eat Diversification's Lunch (June 30, 2015). Financial Analysts Journal, Volume 72, Issue 2, March/April 2016, pages 31-40, Available at SSRN: https://ssrn.com/abstract=2543031 or http://dx.doi.org/10.2139/ssrn.2543031

William W. Jennings (Contact Author)

U.S. Air Force Academy - Department of Management ( email )

2354 Fairchild Drive
Suite 6H-94
Academy, CO 80840-2944
United States

Brian Payne

US Air Force Academy ( email )

Colorado Springs, CO
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics