Fees. Fees. Fees. They
will make you poor! Or at least less rich.
So many people pay too little attention to the effect of fees on their
investment performance but it matters more than you think. If you lose just 1%
to fees on a mutual fund investment over 20 years, you may end up with about
18% less money. On a $100,000
investment, that 1% might cost you about $65,000 in lost earnings. And you might think that paying a high
management fee to own a certain fund will pay off. However, Morningstar has studied this and
found that the lower the management fee a U.S. stock fund had from 2010 to 2015,
the greater its chance of outperforming its category and of not being shut
down. They found that the 20% of all
U.S. stock funds with the lowest fees returned 3.4% more annually over that 5-year
period than the 20% of funds with the highest fees. Let’s not calculate what
that would amount to over 20 years. It
might make you cry. “Fund Fees Predict
Future Success or Failure” Morningstar May 5, 2016.
- Larry Pike, CFA, Client Priority Financial Advisors LLC
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