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F*ck the Funds, F*ck the Fees.
I’ve seen too many people investing in unit trusts, mutual funds, saving plans – whatever these fee-charging schemes call themselves. Some argue that a fund manager will earn better returns for you. Look at their overall performance. Ask the right questions, and the answers rarely justify the high fees.
Ask them some questions and it’ll all start to fall apart.
If you’re still not convinced, take a look at Warren Buffett’s 2023 bet against managed funds here.
When someone charges you a fee to manage your money, know that even a 1% fee can cost you dearly. Fees reduce the growth potential of your investments, and the effect of compounding can work against you. Fees ultimately impact your investment’s growth potential. In a huge, huge way. How huge? The following simple example will illustrate.
The Impact of Fees – The Magic of Compounding Working Against You
We have here, 3 female investors.
Consider three investors, each earning a 10% return per year on an initial RM100,000 investment in 2018. The only difference between them is the fee they pay:
- Girl A: DIY invests on her own, with total fees of about 0.33%.
- Girl B: Pays a 1% fee – a conservative figure for a fund.
- Girl C: Uses a unit trust or hedge fund, paying an estimated 3% annual fee.
Now, long-term investing. Let’s have all 3 investors invest for 30 years.
30 Years Down the Road
- Girl A (0.33% fees): Portfolio grows to approximately RM1.6 million.
- Girl B (1% fees): Portfolio grows to around RM1.32 million, a loss of about RM250K compared to Girl A.
- Girl C (3% fees): Portfolio grows to roughly RM760K—a loss of about RM900K compared to Girl A.
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.
50 Years Down the Road
Over a 50-year period, the impact of fees becomes even more dramatic. Even a 1% fee can leave you with an investment value that is RM3 million less than if you had lower fees. For Girl C, the loss is even more staggering – she is at an RM7 million loss compared to Girl A. This example shows how fees can quickly erode your investment gains.
Girl C is 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.
How’s that for compounded interest? This time, compound interest is working AGAINST you.
Why Fees Matter
High fees act like a hidden tax on your wealth. They reduce the power of compounding, the key driver of long-term growth. Ask around—talk to your parents, uncles, or aunties about their unit trust investments. Many will tell you stories of returns that never met expectations. Now, imagine comparing that with an investment that grows free from high fees. The difference is striking.
A 1% fee could translate to a difference in the millions. Be aware of fees.
What Can You Do?
Invest on Your Own
Consider DIY Investing and managing your own investments in stocks and equities. This can save you from paying high management fees.
We’re fortunate to have local platforms like MooMoo that charge low fees and is regulated in Malaysia.
My review of MooMoo Malaysia can be found here.
Choose Low-Cost Funds
If you prefer professional management, look for funds with minimal fees. Go for international and US ETFs. You can start by taking a look at Vanguard’s VOO. Low fees and they mirror the whole S&P 500. VOO can be bought via MooMoo as well.
Ask Questions
Always inquire about fee structures and the impact on your long-term returns before you commit. As a general rule, forget all our local unit trusts and mutual funds. If you want to invest locally, DIY and invest in stocks. If you want exposure to international and US stocks, go for ETFs.
Conclusion – Say NO to Fees
Next time someone tells you that a 1% or 3% fee is acceptable, show them these figures. Or tell them about Dividend Magic. The cost of fees is not insignificant, and over decades, they can crush your returns.
Pardon my language, but I feel strongly about this. If you want to build wealth, start by keeping your fees low.
You can start by learning how to invest on your own stocks and equities hERE.