By paying an additional wrap fee, it means your total Expense Ratio (ER) is increased by an additional amount equal to the wrap fees per annum. So now the question is, is it worth to pay a fund with SC and low ER or no SC and high ER? For example, is it better to invest in a fund with 1.5% SC and 1.5% ER or a fund with 0% SC and 3% ER? Let’s assume you intend to do a Regular Savings Plan (RSP) of $1000 monthly for a long term investment. Sit back and think which option is good before scrolling down.
Congratulation if you choose the former. Remember it is acceptable to pay a one time SC than to pay higher ER continuously in the long run. A higher ER means more fees are eroding your returns. Therefore choose a fund which has a lower SC if you intend to keep the investment for long term.
The effects on your final investment value are illustrated in the following table for different cost of investment. You can see a significant reduction in the final value if the ER is higher. If you wish to do your own computation you may download my custom made excel file to see the difference.
Scenario: An investor who wishes to invest $1000 monthly assuming the fund can generate an annual return of 8% per annum.
Option 1: Fund with 1.5% SC and 1.5% ER
Option 2: Fund with 0% SC and 3% ER
| Option 1 | Option 2 | |||
| Length of investment | Total Invested | Final Investment | Total Invested | Final Investment |
| after 5 years | $60,000.00 | $69,645.52 | $60,000.00 | $68,090.02 |
| after 10 years | $120,000.00 | $165,065.92 | $120,000.00 | $154,992.06 |
| after 15 years | $180,000.00 | $295,800.14 | $180,000.00 | $265,903.52 |
| after 20 years | $240,000.00 | $474,917.34 | $240,000.00 | $407,457.78 |
4 comments:
what a differences ... fortunately i didn't take up
btw, i think you can pickup intelligent investor at Amazon at good price. otherwise, borrow from library lor
hi durio,
long time no see. glad you are still visiting my blog. :)
yup i have already bought at $31+ inclusive of delivery.
keep up the good work
the "Analysts target price (updated daily)" was rather useful summary. was hoping to accumulate some good dividend stocks
anyway, been pretty busy at work lately, just wish i could have more leisure time available
you better find quality time to spend. reminder dont buy based on the target price summary alone.:)
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