Save $212 on ETF fees | Dollar Saver tip #55
Save: $212
Tip overview:
By selecting a lower fee ETF, you could add hundreds of dollars a year to your investment pool.
Index fund ETFs are popular with long term investors because they can be safer and cheaper than buying individual stocks.
But ETFs have hidden fees that can eat into your returns. Find an ETF with a lower fee and you could save hundreds of dollars a year as your portfolio grows.
Did you know?
Finder's research shows ETF management fees can be anywhere from 0.03% to 2.64% of your portfolio per year.
Say you plan to invest $10,000 of your savings over the next 10 years and you've narrowed your choices down to 2 index fund ETFs.
Both funds follow a similar investment strategy. But while Fund A charges a management fee of 1% per year, Fund B charges a lower fee of 0.05% per year.
Assuming both ETFs deliver the same return of 9% p.a., here's what your balance would look like after 10 years:
Fund A:
- Fund balance: $21,435
- Cost of fees: $2,238
Fund B:
- Fund balance: $23,556
- Cost of fees: $117
By selecting Fund B, you would earn an extra $212 a year. Over 10 years that's $2,121.
Because ETF fees are charged as a percentage, this difference becomes even bigger as your balance grows.
While it's difficult to predict how one ETF will perform against another, low fees are a no-brainer. So when you're selecting your ETF, don't forget to compare the management fees!
