investment
the importance of looking at fees
WSA adsense code -->I’m a maths graduate. This means that inevitably I know a lot of people who work in finance. I was talking to one the other day, and he said that one of the things they’re working on at the moment is looking at the projections that they use for investment returns in their marketing brochures. Currently they use a small range of numbers for annual growth and give a projection of what your investment might be worth in 10 years for the different growth figures.
They’re going to continue doing this in the future, but have decided to look at the range of actual returns on the products to pick the right range of numbers for growth. So, say currently they use 5%, 7%, and 9%, but actual growth is more between 2% and 6% over 10 years then they’d switch to using 2%, 4% and 5% in their marketing projections.
It all sounds very reasonable and sensible to me, but what was funny was that one of the new graduates is apparently doing a lot of the donkey work on the calculations suddenly realised that if (as is the case with many actively managed funds) the charges were 1.8% a year, and the projected return was only 2%, then the fund would have a 2%-1.8% = 0.2% actual return to investors. It would barely cover its expenses and certainly wouldn’t be a good long term investment.
Now, it’s unlikely that 2% is going to be a projected growth rate, but fees are really important when you’re looking at investments. They come directly off the growth of the fund, and you have to pay them regardless of whether your investment makes money or loses money.
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Discussion
7 comments for “the importance of looking at fees”
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It’s a really good point to make. With some investment funds (typically held within a stocks and shares ISA) charging 1.5% per year, you have to have a good 6% or 7% growth to get a good return for your money, and in times like these the charges really make a difference.
It’s one reason why some people love index tracker funds - their charges are typically very low. I used to be really averse to these funds, thinking they were very dull and largely “mechanical” in their nature (ie they were effectively a computer programme tracking the market), but I now understand the value they can bring to a portfolio.
You really make it seem so easy with your presentation but I find this topic to be really something which I think I would never understand. It seems too complicated and very broad for me. I am looking forward for your next post.
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That is a good article, thank you
On the whole, good, good.
This is such a great resource that you are providing and you give it away for free. I love seeing websites that understand the value of providing a quality resource for free. It’s the old what goes around comes around routine.
I had come across two Indian sites — Freelance India and Imperial Biz. But on further scrutiny they appeared to be fraud / scammers. All tghese sites boast of very high earning potential and still want you to pay a hefty joining fee of say Rs.5000/-. I put them the question as to why they do not deduct the fee from my first payment! None of them replied since then. So you should accept the fact that nothing comes for free. And dealing through net is more dangerous as India do not have proper cyber law.
Before investing if you have an investment advisor its a good idea to ask for details on the various types of investment fees associated with your investment or it could cost you more than you think.