Investment Help

If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.

Thursday, May 5, 2011

Investment Management Fees - A Different Angle

DIY Investor is a proponent of paying attention to investment management fees and seeking ways to reduce them. Fees eat up a goodly proportion of people's nest eggs; and they aren't easy to detect because they are, in many cases, hidden. Fees come in the form of investment advisory fees, expense ratios, trading costs, 12b-1 fees, and the list goes on.

In fact, DIY Investor charges .40% management fees and invests primarily in low cost cost index funds (many of which now have zero commissions) which have an expense ratio of approximately .15%. In contrast, many advisors charge 1% management fees and use mutual funds that have expense ratios on the order of 1.3% and, to boot, are actively traded.

What is the impact on fees over the longer term? DIY Investor looked at this using actual market returns over the past 20 years as reported on the BlackRock table of investment performance. This analysis showed that, for a starting portfolio of $1.0 million, the end result was $857,585 less with a 1%/year management fee compared to a 0% (i.e. do-it-yourself investor) where both the manager and the do-it-yourselfer matched market returns. Of course, if you are convinced that your manager can "beat the market" by more than 1%/year then, by all means stay with the manager.

There is another way to look at the impact of fees using the FIRECalc calculator introduced previously. Click "Your Portfolio."  CLICK TO ENLARGE

This will bring you to a page where, at the top, you can input the cost of managing the portfolio in percentage terms: CLICK TO ENLARGE
Source: FIRECalc

There are a number of built-in assumptions for the results (all of which can be changed to reflect an individual's portfolio) that include starting value of portfolio ($750,000), asset allocation (75% stocks/25% bonds), period covered (since 1871), etc.

The results of changing the management fee, starting with a .25% fee and increasing by .25% increments to 1%, are shown in the table in terms of the maximum and minimum values the portfolio will achieve over 30-year periods for the Monte-Carlo analysis:

The results show meaningful swings in the maximum and minimum values over long periods of what many investors take as minor differences in expenses.

No matter how you look at it - portfolio management expenses are expensive over the long run!


  1. Bogle's wisdom: Keep your expenses low!

  2. Good Information. Thank you for sharing and I want to share information about Gerstein Fisher which is a Top-Rated Investment Management Firm that currently manages investments for individuals, families and institutions including endowments and foundations.