Horizon: Managing your money- Sharsies Fee Comparison
October 9, 2017
We were having a discussion recently in Super Rad Babes about Sharsies and their new sustainable investment options. I really like Sharsies and have been investing with them for a while. I was a bit surprised to see that their new funds are managed, I am cautious of managed funds due to the much higher fees they generally charge. Opinions and research on managed vs passive In New Zealand is mixed, I may write another post on this in the future if there is interest. I think it is great they are offering sustainable investment options but young investors are often not aware of fee structures and how they impact returns.
The scenario explained below is designed to illustrate the process of figuring out what fees you will pay in the different funds. Fees will be deducted regardless of whether your investment makes money or not. The future performance of any fund is unknown as it will fluctuate with the value of investments contained within the fund.
You have $10,000 to invest for a period of 5 years, you will not make any changes to the investment during that time, you will sell the investment at the end of the 5 years.
You are choosing between a managed fund and a ETF through Sharsies. This comparison will help you understand the difference in fees you will pay.
Both examples below exclude the initial purchase of Sharsies membership for $30
$10,000 *1.30%= $130 per year * 5 years= $650
$10 (assumes you buy in year one and sell in year five)
Total fees: $660 over 5 years
ETF (Index Fund)
$10,000* 0.60%= $60 per year * 5 years = $300
no cost to buy or sell
This shows that you pay almost double the fees in the managed sustainable fund compared with the index fund. There is also the effect of lost compound interest in the higher fee fund assuming that the returns are the same.
Of course, fees aren't the only thing to think about, there are several other factors you should consider when deciding on investments
- Diversity of assets within the fund
- potential returns
- how returns are managed, reinvested or paid as dividends
- your personal risk profile
- your investment preference passive, active or a mixture
I don’t want to write about these in too much detail here but I am happy to write more on this topic if people are interested. Please let me know here what you are interested in hearing about.