Focus on Investing costs and ETF fees
In this article, we will look at how you can increase your return on investments by cutting costs and why ETF Expense Ratios are crucial to your returns. There are two types costs when buying an ETF:
- ETF Expense Ratio (similarly to any Fund, the Asset Manager charges an annual fee for managing the assets)
- Brokerage costs – how much will your broker charge when you buy and sell the ETF. These costs also add up if you invest on a recurrent basis and when you rebalance your portfolio
Why Cost Matters
Cutting costs is an essential part of every investor’s success strategy. When it comes to investing, every dollar that is paid as trading commissions or management fees is a dollar lost. The main point here is that these costs can be controlled and thus minimized.
While Brokerage costs are one off (when you buy/sell), ETF Expense ratio is charged annually.
Bankeronwheels.com has a ETF Fee calculator where you can plug ETF Expense Ratios for 2 Funds and compare how much you will lose out over the life of an investment – an illustration of how it works is shown below with a starting investment of $100k
After 25 years the difference is a staggering $92.7k between a Fund with 0.05% Fee and a Fund with 0.5% Fee (do your own simulation)
Improving Returns by Reducing Costs
There are two methods of improving after-cost returns for investors – earning higher returns by using a winning investment strategy or getting a winning manager, and the other method is by reducing expenses. You have limited control over the first one since you don’t that in advance. You can fully control the second factor.
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Beat Most Investors with FREE ETF Master Guides
- Get Rich, Slowly but Surely – We designed Equity ETF selection frameworks and then picked the best funds in each category, so you don’t have to.
- Become a Passive Investing Ninja – Have no mercy for Financial Institutions. Cut TERs, Taxes, FX Fees and Invisible Costs.
- Licence to Yield – Which Bond ETFs for your goals? How do price change? Should you hedge currencies?
- Don’t get fooled by Wall Street – ESG Ratings are not designed to protect the planet. Adjusted for risk, ESG ETFs will also inevitably underperform. So how can you invest Sustainably?
From Bankeronwheels.com
Beat Most Investors with FREE ETF Master Guides
- Get Rich, Slowly but Surely – We designed Equity ETF selection frameworks and then picked the best funds in each category, so you don’t have to.
- Become a Passive Investing Ninja – Have no mercy for Financial Institutions. Cut TERs, Taxes, FX Fees and Invisible Costs.
- Licence to Yield – Which Bond ETFs for your goals? How do prices change? Should you hedge currencies?
- Don’t get fooled by Wall Street – ESG Ratings are not designed to protect the planet. Adjusted for risk, ESG ETFs will also inevitably underperform. So how can you invest Sustainably?
Use Indexing to Cut Costs
ETFs (exchange-traded funds) and index funds usually have the lowest costs in the mutual funds industry. Therefore, by using indexed investment strategies, you can easily outperform higher-cost active managers.
Below are fees typically charged by Vanguard which is one of the cheapest Asset Managers in the industry (Google “Bogleheads” to understand why Vanguard has such a large fan base). Along with BlackRock and State Street, these are the TOP 3 ETF providers and here is how their funds compare considering only the Expense Ratios:
From Bankeronwheels.com
We Help You Avoid Costly Investing Mistakes.
Most coaching participants come from the EU or the UK.
But we have consistent demand from all around the world. We provided coaching sessions to individual investors stretching from Argentina to New Zealand, or Guatemala to Japan.
A significant part of our clients are professionals in the Tech sector, Lawyers or Doctors that want to avoid costly mistakes when investing.
We also coach 25-30 year old young professionals that want to maximise assets for early retirement. We also have a large group of entrepreneurs that e.g. receive large lump sums after selling their company and want to invest it in financial markets. We speak to Crypto millionaires that want to reduce their risks.
Finally, some of our coaching clients are in their 40s or 50s and want to set up customised, income-producing portfolios or create Bond ladders for their retirement.
Most of the coached investors are in the 25–60 year old range.
Yes, some of our coaching clients have shared reviews on Google.
Some considerations are included below. For more details, consult your regulator’s website.
A financial coach is:
- Trained but not regulated
- Skilled at reviewing your overall financial situation and goals
- Able to help you develop a financial plan to achieve those goals
- Happy to discuss the pros and cons of various financial products but can’t recommend a specific one for you
- Comfortable working with anyone, whatever their situation
- Going to charge for their time
A financial adviser is:
- Regulated and authorised by the regulator to recommend specific products to clients or is independent and able to offer ‘whole of market’ solutions
- Often, going to charge an annual management fee, typically 1-2% of their client’s assets with initial fees on top.
We are proud to say that our coaching service has empowered a number of clients to reconsider their financial advisers’ offerings. From our clients’ feedback, in a number of cases, clients were overcharged, and offered unsuitable products, often due to conflicts of interest. However, this is not a rule. The best choice between a financial coach and adviser depends on an individual’s unique circumstances, including their financial literacy, time availability, comfort with managing their finances, and complexity of their financial situation.
Beginners often ask us:
- How do I reach my goals – What investments do I need to take into consideration for e.g. Taking a Sabbatical, buying a House or saving for Early Retirement?
- When should I invest – I fear that investing a lump sum in this market may have a negative impact on my returns. How can timing of buying ETFs affect my performance?
- How do I Invest – What are the pro and cons of investing with a Bank? Why should I diversify brokers?
- What should I consider investing in – What are some risks of portfolio diversifiers like Gold or Crypto?
- Avoiding Extra Costs – I have shortlisted a few ETFs, can you help me to compare them before I decide which one to buy?
- Benchmarking – What are educated investors doing in a similar situation to mine?
We are flexible. For example, answering some of these questions could help you avoid very costly mistakes:
- Challenging My Portfolio – Here is my portfolio – what am I missing? What could derail my strategy?
- Accelerating My Understanding – What are inflation linked Bonds? How are they different to Nominal Bond ETFs? What makes them outperform? Why do some investors add small cap value stocks to their portfolios? I want to exclude Tobacco companies from my portfolio – what are my options? What is Factor Investing?
- Simplifying Portfolio Maintenance – How can I diversify my investments? What is historically highly correlated so that I can consider removing it to keep my portfolio simple? How do I perform rebalancing? Does frequency matter?
- Reducing Risks – I want to understand the risks of investments – what are the different measures and how does it impact me? What are the risks of different types of brokerage accounts?
- Understanding the Impact of Recent Events – How do recent events impact my portfolio? What can I do to protect my savings from shocks?
- Investing Goals – I am investing for a specific goal e.g. Early Retirement, what is the research saying about e.g. the amount I need to have accumulated, how much can I withdraw annually? What are some calculators available and how to run them? What are the assumptions/shortcomings of these models?
- Comparing Equivalent ETFs – I have certain constraints in my tax-wrapper and can only select certain funds (e.g. I live in France and limited to specific synthetic ETFs). Which ETF characteristics should I pay attention to?
From Bankeronwheels.com
Get personal help To Set up your portfolio
We Help You Avoid Costly Investing Mistakes.
Sometimes individual sessions are very helpful to get past your investing concerns. Our readers asked us to create coaching sessions. And we’re proud to say, that some of them even ditched their Financial Advisors, after experiencing the value we provide.
Most coaching participants come from the EU or the UK.
But we have consistent demand from all around the world. We provided coaching sessions to individual investors stretching from Argentina to New Zealand, or Guatemala to Japan.
A significant part of our clients are professionals in the Tech sector, Lawyers or Doctors that want to avoid costly mistakes when investing.
We also coach 25-30 year old young professionals that want to maximise assets for early retirement. We also have a large group of entrepreneurs that e.g. receive large lump sums after selling their company and want to invest it in financial markets. We speak to Crypto millionaires that want to reduce their risks.
Finally, some of our coaching clients are in their 40s or 50s and want to set up customised, income-producing portfolios or create Bond ladders for their retirement.
Most of the coached investors are in the 25–60 year old range.
Yes, some of our coaching clients have shared reviews on Google.
Some considerations are included below. For more details, consult your regulator’s website.
A financial coach is:
- Trained but not regulated
- Skilled at reviewing your overall financial situation and goals
- Able to help you develop a financial plan to achieve those goals
- Happy to discuss the pros and cons of various financial products but can’t recommend a specific one for you
- Comfortable working with anyone, whatever their situation
- Going to charge for their time
A financial adviser is:
- Regulated and authorised by the regulator to recommend specific products to clients or is independent and able to offer ‘whole of market’ solutions
- Often, going to charge an annual management fee, typically 1-2% of their client’s assets with initial fees on top.
We are proud to say that our coaching service has empowered a number of clients to reconsider their financial advisers’ offerings. From our clients’ feedback, in a number of cases, clients were overcharged, and offered unsuitable products, often due to conflicts of interest. However, this is not a rule. The best choice between a financial coach and adviser depends on an individual’s unique circumstances, including their financial literacy, time availability, comfort with managing their finances, and complexity of their financial situation.
Beginners often ask us:
- How do I reach my goals – What investments do I need to take into consideration for e.g. Taking a Sabbatical, buying a House or saving for Early Retirement?
- When should I invest – I fear that investing a lump sum in this market may have a negative impact on my returns. How can timing of buying ETFs affect my performance?
- How do I Invest – What are the pro and cons of investing with a Bank? Why should I diversify brokers?
- What should I consider investing in – What are some risks of portfolio diversifiers like Gold or Crypto?
- Avoiding Extra Costs – I have shortlisted a few ETFs, can you help me to compare them before I decide which one to buy?
- Benchmarking – What are educated investors doing in a similar situation to mine?
We are flexible. For example, answering some of these questions could help you avoid very costly mistakes:
- Challenging My Portfolio – Here is my portfolio – what am I missing? What could derail my strategy?
- Accelerating My Understanding – What are inflation linked Bonds? How are they different to Nominal Bond ETFs? What makes them outperform? Why do some investors add small cap value stocks to their portfolios? I want to exclude Tobacco companies from my portfolio – what are my options? What is Factor Investing?
- Simplifying Portfolio Maintenance – How can I diversify my investments? What is historically highly correlated so that I can consider removing it to keep my portfolio simple? How do I perform rebalancing? Does frequency matter?
- Reducing Risks – I want to understand the risks of investments – what are the different measures and how does it impact me? What are the risks of different types of brokerage accounts?
- Understanding the Impact of Recent Events – How do recent events impact my portfolio? What can I do to protect my savings from shocks?
- Investing Goals – I am investing for a specific goal e.g. Early Retirement, what is the research saying about e.g. the amount I need to have accumulated, how much can I withdraw annually? What are some calculators available and how to run them? What are the assumptions/shortcomings of these models?
- Comparing Equivalent ETFs – I have certain constraints in my tax-wrapper and can only select certain funds (e.g. I live in France and limited to specific synthetic ETFs). Which ETF characteristics should I pay attention to?
Think Twice before paying more than 0.4% annually
As you can see, most funds charge fees below 0.4%. Specialized ETFs can be more expensive and that’s why it’s good to have a strong reason to buy them.
Expense Ratios can depend on the type of underlying assets e.g.:
- Blue Chip Stock ETFs should have the lowest charges. E.g. S&P 500 ETF from Vanguard VOO charges only 0.03% annually
- Bond ETFs have slightly higher charges but some of the main Bond ETFs called Aggregate Funds (and probably the only ones you would need for a simple Investment Strategy whether it’s a 1 Year or 5 Year horizon) don’t charge more than 0.05%
Using Tax- Management Strategies to Improve After-Tax Returns
Reducing tax liability is another method of increasing returns. This can be done by allocating investments strategically among tax-advantaged and taxable accounts. The primary aim of this investment strategy is to hold tax-efficient investments like ETFs or broad-market stock index funds in taxable accounts while maintaining tax-inefficient investments like taxable bonds in retirement accounts.
From Bankeronwheels.com
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Difference between ETFs and Index Funds
Remember there are differences between Index (Mutual) Funds and ETFs – while both are cheap on an annual basis ETFs give you flexbility since you can trade them at any time like regular Stocks while Index Funds don’t have any commission fees but give you less flexibility. If you’re in for the long term and contribute every month commission fees can quickly add up as well hence you may consider Index Mutual Funds.
ETF Fees vs. Index Funds Fees - Comparison
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Conclusion
Although, as an investor, you cannot control the market, you can control what you pay to invest.
Over time employing cost-reduction investment strategies will lead to bigger returns and when compounded over an extended period of time, the earnings will be significant
