The Importance Of Management Fees In Investing by Ben Reynolds, Sure Dividend
The biggest mistake I see people make is paying too much for investment products and services. Most investing professionals do not spend nearly enough time discussing fees. After all, it is how they make their money. Simply put, the more you pay for your investments, the less money you have invested to compound.
An investment advisor typically charges 1% for their services. This doesn’t sound like much, but considering that the after-inflation compound total return of the S&P 500 is about 7% over the last 50 years, your investment advisor is getting about 14% of your profits. This is a huge difference over time.
It gets worse, unfortunately. The average US based equity mutual fund has an expense ratio of 1.16%. Somehow, mutual funds charge more than advisors. Having an advisor selecting high priced mutual funds is about the worst you can do.
ETFs are much better. They have lower expense ratios, some as low as 0.05%. With an expense ratio of 0.05%, an investor gets to keep virtually all of their gains. If you had a portfolio worth $500,000, you would pay $250 a year for your ETF. Of course, most ETFs charge substantially more than 0.05%. For example, the Dividend Aristocrats ETF NOBL has an expense ratio of 0.35%. This comes to $1,750 a year on a $500,000 portfolio.
The most cost efficient form of investing is buying shares of individual businesses that you plan to invest in for the long run. This style has an expense ratio of 0%; there are no management fees. Your only expense is brokerage charges from buying your stocks which typically run from $5 to $10 (of course, you’d pay these buying ETFs as well).
I believe that buying and holding high quality businesses that have a history of rewarding shareholders with increasing dividends is the most effective method of investing. The only downfall is the amount of time it takes to identify these high quality businesses. That’s why I created Sure Dividend. The Sure Dividend Premium Newsletter includes a portfolio building guide and Top 10 stock list that simplifies the process of building a high quality dividend growth stock portfolio. It costs substantially less than $5,000 a year, as well.
If you are interested in learning more about The Sure Dividend investment plan and Premium Newsletter, please click on the “Tell Me More” link below: