Day 4: Min(Fees) - “Investment Fees Matter”
Now let’s turn our attention to a less exciting topic: the cost of investing. In investing, a penny saved is a penny earned. Only net returns matter! Recall that the ultimate goal of any investment is to implement the formula max(Net Return) = max (Gross Return) - min (Total Cost), where Total C ost refers to all of the costs incurred to make an investment, which includes the cost of the investment, plus any broker commissions, taxes, licenses, and fees related to the asset management and transaction s . The good news is that c utting costs while i ntroducing a cost-control system is a sure-fire way to improve the profitability of your portfolio without taking on any additional risk . You may want to examine each of these categories of expenses and minimize them wherever possible : 1. The expense ratio The expense ratio is calculated by dividing total fund costs by total fund assets [1] . It includes annual operating costs, including managemen...