How fees affect your return

"We found that the cheapest funds were at least two to three times more likely to succeed than the priciest funds. Strikingly, our finding held across virtually every asset class and time period we examined, which clearly indicates that investors should keep cost in mind no matter what type of fund they are considering.“
- Morningstar® FundInvestorSM Study 2016, . Morningstar is a leading investment research company.

If you’re like the average South African, you are probably paying around 3% pa in total investment fees. But do you know what that figure really means, and what it is costing you? Let’s break it down.

First, let’s start with the type of fees and costs you are likely being charged:

1. Investment Management

This is an annual fee charged monthly based on your investment value that you pay the fund manager for investment and portfolio management services. The typical industry fee is 1.5% for investment management.

2. Administration and Platform Fees

This fee is charged against the value of your fund to cover the expenses of administering the fund and also to cover your provider’s distribution costs. The typical industry fee is 0.5% for administration and platform fees.

3. Advisor Fees

This fee is what you pay for the advice and input of your financial advisor, typically charged at 0.75%.

But what do these fees mean for your money? To paint a picture, let’s take into account the story of Steven, Fatima and Tumi. Even though they all invest the same amount over the same period of time at the same interest rate, the outcome for each is greatly different.

Saves R1000 per month for 40 years, earning 5% pa return after inflation
Pays 1% fees
Retires with R1.1 Million

Saves R1000 per month for 40 years, earning 5% pa return after inflation
Pays 2% fees
Retires with R900 000

Saves R1000 per month for 40 years, earning 5% pa return after inflation
Pays 3% fees
Retires with R700 000

As you can see, each 1% in fees decreases your final investment value by around 20%. And for what? Most investment providers justify these fees by claiming that they will manage your money and get you favourable returns. But considering the fact that active managers only beat the index 1 in 5 times [i] is that fee really worth what you’re likely to benefit from it? Sounds like a gamble to us.

So be smart. Invest with a low fee provider. You’ve worked your whole life for your money -why should it go to anyone but you?

At 10X, we charge less that half the average industry fee. So why not switch? Or find out the impact that your current fees are having on your investment with the 10X Fee Calculator.

In the five years to December 2012, 80% of active funds produced returns below the JSE All Share Index, Profile Data for SA Equity General Equity Unit Trusts.

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