In the property sector there is the very well know saying that says the 3 most importing aspects to consider when buying a property is; 1. LOCATION, 2. LOCATION, 3. LOCATION.<\/p>\n
The exact same principle applies when investing in retirement funds, unit trusts, tax free investments or offshore investments. The 3 most important things to consider is; 1. FEES, 2. FEES, 3. FEES.<\/p>\n
Why are fees so important?<\/strong> If you consider these fees you would agree that a total investment fee can easily be 2.5% for the client at the end of the day. In my examples I would therefore use 2.5% as the average industry fee.<\/p>\n Example 1: Let\u2019s determine what Mr RE Tired total fees paid will be after 10 years in his investment (Assuming an annual return of 8%) Does this seem reasonable?<\/strong> How do you save on investment fees?<\/strong><\/p>\n
\nI will look at 2 practical examples to help you understand the impact of fees on your investment.Before I look at these examples, I would quickly like to explain to you the different fee layers most investments have:<\/p>\n\n
\nMr RE Tired, is retiring at the age of 65 and has R 3000 000 in his pension fund which needs to be invested for his retirement. He\u2019s total fee after investing the R 3000 000 is 2.5% p.a as explained above.<\/p>\n
\nTotal fees payable over a 10 year period will be R 1.1m. That is a crazy 37% of the initial investment amount of R 3m.<\/p>\n
\nExample 2:
\nMr E Ager starts saving R 1000 p\/m (increase of 10% p.a) for retirement at the age of 21 in an investment product with a 2.5% annual cost. At age 65 his retirement fund value (assumed growth of 10% p.a before cost) will be R21.6m.
\nMr C Lever also starts early saving R 1000 p\/m (increase of 10% p.a) for retirement at the age of 21 in an investment product with a 1.5% annual cost. At age 65 his retirement fund value (assumed growth of 10% p.a before cost) will be R26.3m.
\nMr C Lever\u2019s fund value at retirement is therefore 22% higher than that of Mr E Ager.<\/p>\n