Costs: The Dark Side of Investing
What you don’t know can hurt you.
Many investors make the mistake of thinking that the costs of investing with a traditional financial firm are limited to disclosed commissions and fees. The fact is, investing costs are much higher than you probably think. You may be invested in indexed funds or you may be in a mutual fund—either way you still pay the costs.
There are observable costs and there are hidden costs in every investment. The hidden costs alone can rob you of as much as 5% of your portfolio value each year!
Observable or known costs include commissions and disclosed fees such as the expense ratio, a percentage of your portfolio which pays costs of administering the fund. Hidden costs include the “bid-ask spread.” The bid-ask spread is the difference between the asking and the selling price of a stock. When stocks are bought or sold the resulting dollars are sent to the broker/dealer, not to the investor. These transaction costs are not disclosed to the investor.
Mutual funds are the main way American invest in the market. Actively-traded funds (the most common type) often have high turnover rates. Each trade results in another hidden fee. The profit goes to the company, not to the investor. (Re-member those large bonuses we heard about?)
These are just SOME of the costs routinely passed on to unsuspecting investors. There are many others.
Would you like to learn more about hidden costs—and what you can do about them? Margaret Wittkopp or Jeremy Burri will be happy to meet with you for a no-cost convesation about the hidden costs in YOUR portfolio. Just call for an appointment. What you do know can help you!
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