To understand better the computation of the investment fees, there are some things you have to be very familiar with.
First, the management fees could be a huge burden and could make a huge difference to the wealth accumulation. But what most investors do not know is how to compute or to come up with the management fees.
The management fee can be explained to be the cost of having your assets under a professional management. The management fee may vary from one asset class to the other, but typically, the management fee is based on the percentage of the asset under management (AUM).
The performance of the investment fund will largely depend on the performance of the manager. Most of the investment vehicles including the mutual funds, index funds, and the ETFs usually charge a fee to cover the cost of managing and also administering the fund.
Investment Expense Ratio
You will also realize that most of the funds will charge you an annual charge fee. The expense ratio is one of the common ratios analyzed by investors, indicating the measure of the costs that it would take for an investment company to operate an investment fund, say like a mutual fund. The annual fees on a fund can be as low as 0.1% for a passively managed fund but assuming that the investment is actively managed, the annual fees can be as high as 2%.
One thing that you will realize about the annual fees is that they are burdensome to so many investors. It happens because the value of the investment increases – and so does the annual fees.
Assuming that you invest $20,000 which will be held for the next 10 years at 7% annual rate of return. If you were to pay no fees, that would amount to $39,342. With a 2% annual fee, the amount would be $32,576 which is a 17.1% reduction as a consequence of the fees.
The Smart Investor investment fees calculator will let you compare the expense ratios for at least three different funds at the same time. The investor can enter the balance, the regular savings, fees and overtime, you can be able to monitor the investment growth.
Even the smallest fees can make a huge difference to your investment portfolio. Sometimes most investors are not sure of what they are to pay the investment fees. if this happens, we suggest an investment check-up with tools like the FeeX. Some other tools include the personal capital which lets you see the expense ratios.