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Minimising costs should be a core focus of every investor’s strategy.
Costs and fees 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.
To illustrate the point, consider two hypothetical portfolios. Both have $100,000 starting values. Both have $10,000 in additional contributions made at the start of each year. And both are assumed to earn 7% per annum in returns each year.
The only difference between the two is fees. Portfolio A is assumed to incur lower annual fees of just 0.9% per annum, similar to the overall costs of Six Park’s offering. Portfolio B’s fees are assumed to be 3% per annum, the typical costs associated with a financial advisor / platform / managed fund offering in Australia.
The difference in the projected balances between the two portfolios is stark. After 10 years, Portfolio A’s balance is over $47,000 higher. After 20 years, the difference is over $190,000 higher – more than 1.9 times the portfolio’s original starting value. This shows the clear and significant impact that fees can have on long term portfolio value.
The above results are illustrative only and do not represent any particular investment. If the assumptions were altered, results would vary. There may also be other material differences between investment products that would need to be considered prior to investing.
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.