How much will fees hurt me?

Glen_Clark

ColdIron wrote: »

I suppose that if the OP followed the advice to exchange his multi asset fund including fixed income and equities in geographies covering Europe and Japan through to China and Mexico for one in only North American equities he would need to consider it was worth a reduction in fees of less than two tenths of a percent. Just thinking aloud

How do you get 0.67% minus 0.07% to be 'less than two tenths of a percent'?

I don't know whether the other investments you quote will do better than the worldwide companies headquartered in North America. But after such a reduction in fees it seems unlikely to me.
PS: I have further diversified by putting some in other low charging ETFs (UK and Europe with charges up to 0.12%).

SouthLondonUser

Let’s say you invest £2 in 2 funds (£ 1 in each) tracking the same index, and let’s suppose that they both reinvest dividends (no distributions), and that there are no fixed fees, trading fees (there is no trading other than the initial investment), upfront fees etc – only a % annual fee.
After y years, your net return with fund 1 will be:
(1+r)^y x (1-f1)^y , where f1 is the fee of fund1 and r is the return of the index.
The net return with fund 2 will be:
(1+r)^y x (1-f2)^y

The return with fund 1 will be: (1-f1)^y / (1-f2)^y – 1 higher/lower than with fund 2.

Some examples:

fund1 charges 0.5%, fund 2 charges 0.3%, and you invest for 10 years ---> the return with fund 1 will be ca. 2% lower ( = (1-0.5%)^10 / (1-0.3%)^10-1 = 1.99% ).

Fund1 charges 1% (what many stakeholder pensions charge), fund 2 charges 0.35%, you invest for 20 years --> the fund 1 return will be 12.27% lower.

Note that:

• The return of the underlying index being tracked is irrelevant
• These calculations apply if you invest a sum now and don’t add to your investment; if you invest a given sum every month the numbers will be different

Thrugelmir

dividendhero wrote: »

It's still a loss of 11% of your final capital sum, you might be cool with that but many won't be

Buy shares directly and avoid fees altogether.