Investment
Investment costs and performance
Managed fund costs can add up over time and directly impact your investment returns - sometimes by as much as two per cent each year.
The types of fees managed funds may charge include:
- entry or establishment fees
- contribution fees
- withdrawal fee
- exit or termination fees
- ongoing management costs
- switching fees
- adviser service fees or trailing commissions
- master trust and platform fees
Not all managed funds charge these fees, so make sure you examine the fine print and know exactly what you are paying for and how much.
Typically index funds have lower management fees than actively managed funds. For example, Vanguard's retail fees are around half the industry median. Vanguard doesn't charge entry or exit fees, contribution or switching fees (apart from the usual buy-sell spreads that apply to all transactions) and does not pay commissions to advisers.
Lower costs can translate into better performance for investors over the long term. For example, a one per cent difference in total annual fees and costs (eg 2% rather than 1%) could reduce your final return by up to 20% over a 30 year period.
As founder and former CEO of the Vanguard group John C Bogle says: "common sense tells us that performance comes and goes, but costs go on forever."
See how different fees can impact your investment returns with Vanguard's managed funds cost calculator.