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Step Three | Control your costs

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By startdig Markets and Investments

It is rare that a ‘star’ manager will consistently outperform the share market index, and when they do their management costs often undermine this performance.

The fund industry and the media like to make investing seem exciting. they typically focus on performance and the possibility of striking lucky and earning big returns. in fact investors should be more concerned with a more mundane but far more important issue, cost.

The good news is that although you have no control over how your fund performs, you can control the fees and charges you pay.

Studies have shown that overtime cost is the single biggest predictor of investment returns.

Yes, generally speaking the more you pay to invest the smaller your net returns will be. inevitably costs create a gap between the market return and what you as an investor actually receive by reducing your costs.

You can at least narrow that gap and don’t underestimate the long term difference that will make.

Because of the effects of compounding charges year after year it’s not uncommon for fees and charges to swallow up half of investors potential returns.

The best way to keep the cost down is to use index funds which simply track an index at a fraction of the cost of actively managed funds.

Remember every time you trade you incur expenses so the less you chop and change your portfolio the better controlling your costs is.

The third step to successful investing: You

The information provided on this site is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if these strategies and products are right for you.

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