Friday, December 9, 2016

Avoid costs

Actively managed stock funds charge yearly fees of 1-3%. Some take management fees even north of 4%. Yet, most of them fail to beat their benchmark index.

It's easy to think yearly cost of 1-2% does not matter much.
Big mistake.

The difference between paying 2% of yearly management fees vs. none is 189.000 in lost capital gains over 30 years for 100.000 initial investment with annual 5% gain. See below.

The difference gets even more staggering if just one parameter is changed. With annual gain of 10% you would miss gains of 739.000.

In long run, it's not the profits alone that matter - also cost of holding matters a great deal!