08.Fee comparison
The fees you pay for your investments can have a big impact on your returns. The table below compares the after-fee returns for various index funds, based on $10,000 invested for five years (the minimum recommended by some fund managers), with annual growth (before fees) of 8%.
- Other things being equal, lower fees mean an ETF gives the best return (about $300 better than a competitive index fund, which in turn is around $1000 better than a fund with high entry/management fees).
- The results will differ depending on assumed return, investment timeframe and amount, and other factors, such as brokerage you pay to invest in an ETF (we assumed $30, a reasonably competitive rate from an online broker), or the fees you negotiate with a financial planner.
| |
Effect of fees on index fund returns |
|
streetTracks S&P
/
ASX 200 Fund (a) |
Vanguard Index
Australian shares (b) |
BankWest Top 200
(c) |
Fund with higher
entry/
management fees (d) |
| Entry fee ($) |
NA |
Nil |
Nil |
400 |
| Stock broker fee ($) |
30 |
NA |
NA |
NA |
| Ongoing management fee (MER) ($) |
173 |
451 |
586 |
797 |
| Total entry and ongoing fees ($) |
203 |
451 |
586 |
1197 |
| Return after entry and management fees ($) |
14,449 |
14,170 |
14,013 |
13,180 |
| Exit /stockbroker selling fee ($) |
30 |
Nil |
Nil |
Nil |
| Return after exit fee ($) |
14,419 |
14,170 |
14,013 |
13,180 |
| |
Table notes
Assumptions: $10,000 invested for five years, annual return before fees of 8%. For simplicity, we assume you don’t pay an adviser service fee and we don’t take account of taxes or inflation.
(a) We assume brokerage fee $30, MER 0.286%.
(b) No entry or exit fee, MER 0.75%.
(c) No entry or exit fee, MER 0.98%.
(d) Entry fee 4%, no exit fee, MER 1.4%.
This article last reviewed March 2006