I gave Jeff Reeves my thoughts on fees and the impact they can have on your portfolio. You can read Jeff’s USA Today piece here. And the following is an excerpt:
The thing to remember, Sizemore adds, is that you don’t get a bill for mutual fund fees; they are “baked in” to your investment’s performance. For instance, if that same mutual fund charging 0.7% each year generates a 10% annual return, it passes 9.3% in gains on to you and takes 0.7% off the top.
Furthermore, “returns lost to fees actually compound over time,” he said, since you lose not just that fixed fee up front but also potential investment returns that could have been made on that extra cash.
Given all this, it’s crucial for investors to keep an eye on what they are paying and try to keep costs as low as possible…
“A fee number in a vacuum really doesn’t tell you much. If you’re investing in a strategy that really is different and really adds something to your portfolio, then paying a higher fee shouldn’t be a deal breaker,” he said. A few investment areas that tend to be more sophisticated and charge higher management fees include emerging market investments or unconstrained bond funds, Sizemore said. However, he adds that “If you’re getting a fund that tracks pretty closely to the S&P 500, then it’s hard to justify paying a premium.”…
“When presented with many different ways to do the same thing, always err on the side of lower costs,” Sizemore said.
You can read the full article here.