We are losing 73% of the capital due to high fees, why should I buy them?
Not going to change my fund investment plan, still going to allocate 0% to it ![]()
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TLDR: According to Warren Buffett, mutual funds charges high fee and yet under perform low cost index fund over the long term. So why do I want to pay more to get less? The effect of compound interest works on fees, so when the fees compound over time, you are losing a lot of money.
Story time
When buying a fund the most critical thing to look out for is fees. Fees are charged regardless if the funds earn money or lose money, and it is charged base on the total amount of your portfolio.
How does fees affect your return?
TLDR: According to Warren Buffett, mutual funds charges high fee and yet under perform low cost index fund over the long term. So why do I want to pay more to get less? The effect of compound interest works on fees, so when the fees compound over time, you are losing a lot of money.
Story time
When buying a fund the most critical thing to look out for is fees. Fees are charged regardless if the funds earn money or lose money, and it is charged base on the total amount of your portfolio.
How does fees affect your return?
If you start out with $10k and you put them in a 0.2% fees low cost index fund and a 2% fees mutual fund, over 30 years. The difference in your capital is $39,870. With the high fee 2% funds you get $54,890, but with the low fee 0.2% index fund, you get $94,760.
Just with a difference of 1.8%, you are losing out 73% of capital gains over 30 years. That is the power of compounding.
If you manage to get a funds that only charge a 1% fee, it will still result in a difference of $19,543. Just a 0.8% difference in fees, you are losing out 26% of capital gains over 30 years.
Warren Buffett even put up a $1million bet that the low cost index will beat actively managed funds. Guess who lost? the funds hahahahaha![]()
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How to find out the fees of a fund?
I did not pull the 2% figure out of thin air, the fees are advertised by the funds. You can see the fees for the funds by following the steps here.
Just with a difference of 1.8%, you are losing out 73% of capital gains over 30 years. That is the power of compounding.
If you manage to get a funds that only charge a 1% fee, it will still result in a difference of $19,543. Just a 0.8% difference in fees, you are losing out 26% of capital gains over 30 years.
Warren Buffett even put up a $1million bet that the low cost index will beat actively managed funds. Guess who lost? the funds hahahahaha
How to find out the fees of a fund?
I did not pull the 2% figure out of thin air, the fees are advertised by the funds. You can see the fees for the funds by following the steps here.
Is all funds bad?
Nope, there are some that outperform the market over a long period of time like the Medallion fund, and $Berkshire Hathaway-A(BRK.A.US$ which is technically a mutual fund. But generally they are bad because of the fees.
So if you are interested in funds, remember to find those with good returns and low fees, otherwise you might be better off with a low cost index fund like $SPDR S&P 500 ETF(SPY.US$.
trade safe![]()
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Source
https://youtu.be/ibCMPzt01MA
Nope, there are some that outperform the market over a long period of time like the Medallion fund, and $Berkshire Hathaway-A(BRK.A.US$ which is technically a mutual fund. But generally they are bad because of the fees.
So if you are interested in funds, remember to find those with good returns and low fees, otherwise you might be better off with a low cost index fund like $SPDR S&P 500 ETF(SPY.US$.
trade safe
Source
https://youtu.be/ibCMPzt01MA
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Milk The Cow : ic
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doctorpot1OP Milk The Cow: made an update to show how to find out the fees.
Milk The Cow doctorpot1OP: wow, this funds management fee sure is expensive
doctorpot1OP Milk The Cow: is quite common, actively managed funds all very ex one. they hire very expensive fund managers. the fund do well or badly, still need to pay salary so yea it is gonna be expensive.
hh488 : So any low cost fund with good returns to recommend?
doctorpot1OP hh488: generally passively manage funds such as ETF and index fund have super low fees. the most popular one is $SPDR S&P 500 ETF (SPY.US)$ which is an index fund that tracks $S&P 500 Index (.SPX.US)$. this is the benchmark everyone uses to compare performance against.