Investment Related Expenses

On 11/12/2010, in Mutual Funds, by Jordan Wilson

I have written extensively on investment related expenses.

These include: transaction fees, mutual fund sales charges, management fees, operating expenses, administrative costs.

I will keep raising this issue for two reasons.

One, it is critical to minimize your investment costs if you want to maximize your long run portfolio performance.

And yes, there may be some limitations to this as you often get what you pay for. At times, you can cut costs too much and end up hurting yourself. But, in general, it is a good rule to follow.

Two, investors do not always realize how much they pay in actual investment related expenses.

In the November 10, 2010 print edition of CA Magazine, some interesting numbers are cited (no link available and some minor editing on my part to the quotes).

Of 18 countries reviewed in a 2007 Harvard University study, Canadian mutual funds had the highest management fees.

2.52% fee paid by clients for managing the average Canadian equity fund in 2009.

A 2010 survey of affluent Canadian investors found 47% incorrectly believed they paid no fees to manage their mutual funds.

14% of hedge funds do not disclose performance fees for managers, according to a study by Toronto-based Investor Economics.

20% accounted for by hidden investment fees in clients’ accounts, according to a 2007 article by fiduciary risk expert Robert Pouliot.

These are some scary numbers.

If you are paying a fund company 2.52% per annum, you will have a hard time creating wealth in the long-term. And that is only the average figure; many investors are paying more.

If you are in this group, I might suggest you sell your funds and invest in shares of the fund company. If they can get away with charging those fees, they should be quite profitable.

Always ensure that you know the total fees and costs you incur on your actual and potential investments. Then take steps to minimize these expenses wherever it is feasible.

Always get the best value for your money.

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