Savings Accounts Charge More Than Hedge Funds?

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The Reason Your Banker Is Always Smiling

If the latest stats are to be believed, upwards of 80% of the money “invested” by Filipinos is parked in typical garden-variety savings accounts.  For tens of millions of Filipinos, having a savings account is regarded as safe, practical and prudent.

These same savings account holders would be astounded to learn, however, that relative to returns banks charge higher fees than the world’s top hedge fund managers.

How is this possible?  It’s simple math, actually.

Robert Merton: Observations on the Science of Finance in the Practice of Finance | MIT World

There’s much to learn from Nobel Laureate Robert Merton, both what to do and what not to do.

Hailed as the Newton of Modern Finance, in academic circles he’s perhaps most famous for the Black-Scholes-Merton options pricing formula, for which he shared the 1998 Nobel Prize for Economics.

In 1998 Merton was partly to blame for the collapse of Long Term Capital Management–a hedge fund which failed spectacularly by losing $4.6 billion in less than four months.   In January 2009, his financial advisory firm Trinsum Group, filed for bankruptcy.