3 Ways Investment Fees Matter

man on calculator

man on calculator

The year 2005 was when I first began to manage client’s investments. The ensuing few years afforded me the false pretense that I had a grasp of things. Then it hit, the S&P 500 declined (53.0%) from October 15, 2007 to March 2, 2009. And (38.0%) of that loss occurred in one calendar year, 2008. Since that time, as client accounts have made their way back whole and then continued to compound, I have been left with one clear understanding: Fees Definitely Matter.

Some accounts, with relatively the same Risk Tolerance profile, have compounded faster than others. The difference, some accounts have higher fees than others; whether that be from internal expenses, management fees or custodial fees, there are numerous types of fees that will add drag to an account’s growth. Assume three client accounts all had $100,000, they each earned 7% (Gross Annual Return) for the next 10 years. Using this simple math, which option would you choose?

Account #1 – total annual fees equal 1% – ending value would be –           $179,085

Account #2 – total annual fees equal 1.75% – ending value would be –    $166,810

Account #3 – total annual fees equal 2.50% – ending value would be –    $155,297


The difference between Account #1 and Account #3 is 15%, with the same performance! Pay attention to fees, look to calculate your Gross-to-Net performance. Unless you are paying additional for Financial Planning advice, look to pay less than 1% (Net) for Investment Management. Can’t find it, look to automate it, check out Wealthfront or Betterment.

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