November 07, 2018 Why fees can seriously cramp your investment style
You rarely get a free ride in life. Same goes for investments – every one you make will have some kind of fee attached.
Left to run amok, fees can seriously suck the life out of your investment portfolio. I’ve lost count of the number of people I’ve met with active portfolios who’re losing significant amounts of cash at the hands of rampant fees. They really are the blood-sucking leech of the investment world.
Okay, so how do avoid them? You have to be smart. While you’re never going to get a free ride, you can definitely minimise them. Do your due diligence and shop around, and you’d be surprised just how much the smallest percentage saved in fees each year can add quite a few digits to your long-term investment portfolio.
Whether you’re thinking of going DIY or engaging an adviser, here’s what you need to consider…
Types of fees
For the uninitiated, we’re talking administrative fees, trading fees, fees that go to fund managers who buy and sell securities within a particular fund, sales commissions, marketing and distribution fees, you name it. The list never ends. Ask your fund for a list of all fees to understand where you stand here.
Transparency
If you’re engaging a financial adviser, make sure they’re completely transparent – both in terms of their own fees and the full list of fees charged by a particular fund or across numerous funds they recommend.
Compounding costs
Think of it as the exact opposite of compounding returns, namely compounding costs. Whereas the power of compounding returns can help send your portfolio north over a number of years, the compounding cost of unchecked fees can put a serious ceiling on your folio’s profit potential.
Platform
Again, whether you’re planning on going DIY or thinking of engaging an adviser, just a quick heads-up: when you buy and sell units in managed funds, in particular, an investment platform can have better buying power with managed funds which means they can negotiate a cheaper fee that you could directly. What’s more, platforms typically incentivise you with lower fees when making larger investments.
Still, have questions? Feel free to give me a shout to arrange a coffee, or drop me a line and I’ll flick you through our Investment Philosophy, which will give you both a broader understanding of our approach to investing and includes an in-depth case study on the long-term impact of fees on profits.
Of course, if you are ready to take action today you can book in a chat directly with me below.
Disclaimer: all information contained within this article is of a general nature. It does not take into consideration your personal financial circumstances. Please consult a professional financial adviser (just like us 🙂 ) when making a financial decision.
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