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How Much is Investment Management Worth?



January 09, 2008 – Comments (3)

Personal Fianance Blog did a post about his investment costs for the past year.  What caught my attention with it was that his commission cost and subscription costs only came to 0.07% of his portfolio.  

Mutual funds tend to charge a 1-2% management charge, which is enormous compared to gains.  Take a portfolio with a 10% gain, the management fee is then 10-20% of the gain.  If the gain is only 5% then it is 20-40%.  And you will usually pay that fee even if the fund loses money.  His fees work out to 0.8% of his gain, and that includes subscriptions.

His gain on the year was 8.77%, ahead of the S&P 3.5% gain, the DJIA 7.2% gain, but behind the Nasdaq 9.8% gain.

I haven't looked at what I paid in fees at all, yet, but they were way more than 0.07%, maybe 3-4%, but then my gain was way more than 8.77% for the year as well.

3 Comments – Post Your Own

#1) On January 09, 2008 at 1:19 PM, LouieJunior (25.86) wrote:

Professionally managed portfolios and trust accounts often have a graduated fee -- with the fee declining in percentage terms with larger balances. One percent is high.

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#2) On January 09, 2008 at 4:46 PM, eskatonic (28.47) wrote:

didn't s&p500 gain ~5.5% if you factor in dividends ?

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#3) On January 09, 2008 at 10:58 PM, abitare (29.62) wrote:

Good post. I used to intern with a full service broker. I always felt I was a better source of financial info then many of them and I was in college. The internet is changing the Investment Management business significantly. I think you are usually far better off managing your own money and minimizing your transaction costs.

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