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Investment Fees: How small fees have a big impact on portfolios

Investment Fees: How small fees have a big impact on portfolios
Investment Fees: How small fees have a big impact on portfolios
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A recent article in the New York Times discussed a bulletin released by the SEC that shows the effects of fees and expenses on your investment portfolio.

The bulletin used a simple example to show that the impact of a 1 percent annual fee on a $100,000 account earning just 4 percent annually over 20 years is far greater than one would imagine.

Considering the reduction in the account of the fee plus lost opportunity costs, the total affect of the 1 percent annual fee would amount to a loss in revenue of approximately $40,000; this is about one-third of the net return over 20 years of $120,000. And this is before taxes.

Of course, the higher the returns, the less of an impact fees have. But it is often the case that many funds return less than 4 percent annually on average. To make matters worse, the average fee for a mutual fund is typically around 1.26 percent or higher.

Add to that additional transaction costs: markups; sales loads; surrender charges; advisory fees; annual variable annuity fees; and 401(K) fees (for retirement plans). These additional costs will bring the average fee to around 1.5 percent resulting in a loss of revenue exceeding $60,000.

To learn what you are being charged on your managed portfolio, you can do the following:

· Read the material provided by financial advisor or portfolio manager.

· Ask questions specifically about all charges, and why or when.

· Ask questions about the compensation your financial advisor or portfolio manager is receiving.

· Check your statements.

If you feel your fees are too high, you can do the following:

· Follow up by writing a letter indicating your dissatisfaction.

· Negotiate with your advisor about reducing your fees.

· Comparison shop for other investment services and transfer your funds.

To learn more about understanding your fees, you can go to the Investor.gov site.

If you would like to self-direct (or manage) your portfolio and earn greater returns using options, go to optionsannex.com.