Recently we noticed a commentator on the SmartShanghai.com article saying that “the fees on all platforms are pretty much the same, so it matters more on how you use it”.
We vehemently disagree.
The range of fees in products is vast. We've seen products with a fee headwind of 6-8%.
Market returns are 7-9% on average, so fees will likely take most of your gains.
We have discussed why it makes sense to have lower fees many, many, many times.
Still, it can be a confusing subject, so we explain the layers that you can face.
So what layers do I need to ask about when I invest?
Investment Product Level
Entry and Exit
Management Costs
Trading Costs
Fund Costs
Entry and Exit
Management Fees
Now, we don’t want investment platform operators at our door complaining that we are revealing all their secrets. So we will describe product fees without using any names.
We will call them the Red, the Blue and a Managed Account.
Even once you add a 1% financial advisor fee to the Managed Account from Interactive Brokers, you are still way ahead of the other two options. Options that also severely limit access to your funds.
Now, some would argue that fund fees aren’t part of the product costs. That’s true, but they are still costs that will reduce your return, so it’s worth knowing what they are.
Professional investors and pension fund managers use exchange traded funds (ETFs) due to their big cost advantage over mutual funds higher management. So should you.
As you can see, the total effect adds up over time. Now some product providers talk about “bonuses”. Why are bonuses necessary? Surely the product is already wonderful?
Well, I think the answer is pretty clear, and if you do the sums, it is not nearly enough.
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Interactive Brokers provides execution and clearing services to customers. None of the information contained herein constitutes a recommendation, offer, or solicitation of an offer by Interactive Brokers to buy, sell or hold any security, financial product or instrument or to engage in any specific investment strategy. Interactive Brokers makes no representation, and assumes no liability to the accuracy or completeness of the information provided on this website.
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