That 1% Fee Impact – Mutual Funds vs Investing on your own

F*ck the Funds, F*ck the Fees.

Mutual Fund Fees

I’ve seen too many people investing in unit trusts, mutual funds, saving schemes and whatever else these fee-charging mechanisms would call themselves.

One may argue that a fund manager would be better equipped and earn better returns. But please, have a look at their performance, not just that one fund that’s performing well, but a fund house’s all-encompassing funds.

Hear me now, when someone charges you a fee to manage/invest your money, be well aware.

Why? Because fees ultimately impact your investment’s growth potential. In a huge, huge way. How huge? The following simple example will illustrate.

 

Compounding Against You – Fees and their Impact

We have here, 3 female investors. Each earning the same 10% returns per annum, investing in 2018, RM100,000. The only difference – their fees.

Girl A invests in the stock market on her own, I’ve calculated the total fees to about 0.33%.

Girl B, 1% – a conservatively low figurer in a fund from an online platform like Fundsupermart.

And Girl C, who goes directly through a unit trust agent. Not going to name names but a 3% annual fee would be a conservative number here as well.

Now, long-term investing. Let’s have all 3 investors invest for 30 years. Example A.

Dividend Magic Fees Impact 30 year
30 Years Down the Road

Girl A (0.33% fees) will stand to have a portfolio worth close to RM1.6 million.

Girl B (1% fees) – RM1.32 million. A difference of about RM250K.

Girl C (3% fees) – RM760 thousand. A difference of RM900K. 

30 years down the road, Girl A’s investment is going to be worth 2x more than her counterpart that invests at 3% fees.

Now let me show u the difference in value in 50 years. Still a reasonable time frame in my opinion.

Dividend Magic Fees Impact 30 year
50 Years Down the Road

How’s that for compounded interest. This time, compound interest is working AGAINST you.

I’ll let the figures speak for themselves. Even with a 1% fee, you stand to have an investment value that’s RM3 million less than your counterpart – Girl A. After 50 years.

As for Girl C? Well.. she’s probably going to be really happy if a unit trust agent tells her she will have RM3 million after 50 years IF her investments give her 10% annually.

But, mention her girl friend A’s investment value of RM10 million? She’s bound to go ballistic.

 

End.

So, the next time someone tells you a 1% or 3% fee is nothing. You can go ahead and let loose the profanities.

Or tell them about Dividend Magic.

 

7 Replies to “That 1% Fee Impact – Mutual Funds vs Investing on your own”

  1. i’m curious, would you consider using a robo advisor who charges 1% fee p.a. for convenience such as auto portfolio allocation and re balancing or would you skimp and pay 0.33% and DIY?

  2. Hi, are you sure those aunty and uncle know how to invest on stock market as their portfolio? Many of them even dont know how to read reports and accounting term. That why units trust agent still employ in this market.

    1. Hi Qi Wai,

      I’d rather the uncle aunty throw their money in sound and big companies than give their fees to agents. Their returns I’m sure will be better than unit trusts long term.

  3. Hi, i’m just starting to go into investment recently. & your post totally make the decision for me! because i’m still thinking whether to go for unit trust platform or play it my own.

    But how do we earn so much after so many years if we’re buying the stock? Do you mean through selling the stock or dividend?

  4. Hi Leigh,

    Interesting article. Now I can use your concept to preach about the cons of using EPF money to invest in Unit Trust. Why pay unnecessary commission for something that not necessary beat EPF annualised return long term? Percentage wise, I don’t think EPF expense against Net Investment Income is as high as Unit Trust.

    And I think whenever UTC talk about the long term, they are indeed misleading..

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