Impact of Mutual Fund Fees on Future Value of Investments
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Fees can really hurt a portfolio. In my own investing, I try to limit the fees I pay by doing a couple of things.
1. Limit the number of high MER mutual funds I hold
2. Choosing brokers that offer low fees for buying and selling securities
3. Not trading in and out of stocks
This has served me well in the past and I imagine that it will do so in the future. There are a number of calculators that an investor can use out on the web that highlights the impacts of fees on the future value of investments. The one I like the best is available at the Vanguard site.
Their calculator assumes the following (which IMHO is pretty typical of the average investor):
Suppose you have $10,000 to invest. Let’s say you invest half of it in Fund A with an expense ratio of 1.3%, and you put the other half into Fund B with an expense ratio of only 0.3%. Assuming subsequent annual investments of $5,000 and an 8% rate of return, click the chart to see what can happen to your investment in 20 years.
The results are amazing:
By saving 1.0% in fees nets the investor over $28,000 in gains. In Canada, with the average fund MER being around 2.5% the savings are huge.
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Sun said:
For mutual funds, there are plenty of low-cost funds to choose from and there’s no commission if investing directly with the fund company. But for stocks and ETFs, the fees are always there. I have a couple of dividend-paying ETFs with Sharebuilder and Firstrade, and they charge $4 and $6.95 per trade. For ETFs, I still didn’t find a cost effective way to invest.
November 2nd, 2006 at 9:03 am
