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Mutual Fund

How Fees Impact Your Returns

By Leigh
Updated September 25, 2019 Filed Under: Dividends, FI/RE, Financial Independence, Investment 13

Mutual Fund Fees

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

I’ve seen too many people investing in unit trusts, mutual funds, saving plans 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.

Ask them some questions and it’ll all start to fall apart.

Hear me now, when someone charges you a fee to manage/invest your money, be well aware. That 1% is going to cost you dearly.

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.

And Girl C, who goes directly through a unit trust agent or through hedge funds. 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) – RM760K. 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.

Ask around, your parents, uncles, and aunties, ask them how their unit trust investments are doing. I bet there are going to be some who have lost a shit ton of money.

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.

Pardon my french but I feel really strongly about people charging high fees when their results aren’t even there.

You can start investing on your own in stocks and equities hERE.

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