While investors cannot control the markets, they can control (at least to a large extent) the amount they pay to invest and maintain their portfolios. We believe minimising fees and costs should be a critical focus of every investor’s strategy.
The level of costs and fees incurred while investing can have a dramatic impact on overall portfolio returns, particularly over the longer term. This is because the lower the costs, the greater the proportion of an investment’s return which can flow to the investor and the larger the potential for that money to be reinvested and compound into the future. Put simply, every dollar saved in trading commissions and management fees is an extra dollar available for investment and earnings potential. Over time, even small differences in fees and costs can add significant additional returns.
The graphic below illustrates just how strongly costs can affect long-term portfolio growth. It shows two hypothetical portfolios, each with identical starting investment amounts of $100,000, the same additional annual contributions of $10,000 per year and each generating the same average return rate of 6% per annum. For the illustration, Portfolio A is assumed to incur lower annual fees of just 1.0% per annum while Portfolio B’s fees are 3% per annum (or the approximate costs associated with a financial advisor / platform / managed fund offering in Australia). The difference in the projected balances between the two portfolios is significant. After 10 years, Portfolio A’s balance is over $46,000 higher and after 20 years, the difference is over $162,000 higher – more than 1.5 times the portfolio’s original starting value!
At Six Park, our focus is on keeping costs as low as possible. All of our portfolio offerings are represented by low cost, passive ETFs. Not only do these products charge low fees, but being passive, they tend to have lower portfolio turnover (i.e. less buying and selling of investments), which minimises the underlying transaction costs and associated taxes - especially compared to actively managed alternatives. In addition, Six Park’s fees are significantly lower than those incurred with traditional investment advice. This ensures you retain as much of your well-earned investment returns as possible.