Last Updated on July 24, 2022 by The MediFi Guy
Fee Fees Fees! One of the most important things to understand when it comes to investing.
“How can I know whether something I invest in will have a good return?”
Fees!
Low fees have been shown to be the best predictor of a high future return. A better predictor than past performance, current performance, or any theoretical future predicted performance. Low fees are the only proven consistent predictor of a good future return! Knowing this, it is imperative that you keep your investment fees as low as humanly possible when selecting what investment products to purchase.
“But what’s so important about fees?”
Look at this graph:
This is an example that shows how much of an effect a small 2% difference in fees makes to an investment of R10 000 per annum (it’s actually in us dollars but let’s pretend its rands) over a period of 40 years (the standard working career), assuming an annual rate of return of 6% p.a.
The higher fee of 3% used in the example represents the standard investment industry fee charged for many actively managed high-fee investments. The lower 1% fee is what you would instead be paying if you chose a low fee passively managed investment and managed your own finances, which requires minimal time and effort to learn how to do.
The end result of that small 2% difference in fees, as you can see in the graph, is a lot more than one would expect.
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