Dividend Growth Investor: Keeping Investing Fees Low Matters
Investors have to deal with significant uncertainties, as investing is largely an exercise in predicting an unknown future. That can lead to big problems for investors who bet heavily on a potential outcome that doesn’t come to pass.
Fortunately, there are a few factors that investors can control. And one of the biggest that can impact a portfolio’s value over time is keeping fees to a minimum. The difference can amount to hundreds of thousands of dollars over time.
The reason is simple. The more fees you pay per year, the more of a drag you have on your performance. Wealthy investors may not matter, which is why they pay hedge funds “2 and 20” to manage their money. Every year, they shell out 2 percent off the top… and 20 percent of any profits the fund makes.
Yet most hedge funds on average don’t outperform the market. And most don’t even hedge, so they often get into trouble when a leveraged bet doesn’t play out.
Fortunately for everyday investors, fees are coming down. That’s making it easier to avoid the hefty drag on investment performance. And some index funds have such low fees that investors can earn just about the market’s return over time with little risk of any one position blowing up a portfolio.
Investors would be wise to look at the fees they’re paying on funds, including those in their 401(k) plans.