In last week’s newsletter, we shared insights on optimizing your investment portfolio for capital gains and income tax savings. This week, we’re focusing on ETFs and mutual funds, and specifically the fees that come with them. Many of you likely have these in your trading or retirement accounts.
🧠 What you need to know
Both ETFs and mutual funds bundle stocks or bonds into one package, but they operate differently. ETFs trade throughout the day just like stocks, while mutual funds trade only once a day after the market close.
Exchange-traded funds (ETFs) and mutual funds are both effective for diversifying your investment portfolio without selecting individual stocks. However, they incur certain fees and expenses.
One major fee is the expense ratio, which represents the annual fee you pay to invest in a fund. These fees can be opaque and challenging to calculate their true impact. When are fees ever easy to understand?! The fees for one popular ETF, the iShares Biotechnology ETF (IBB), are 0.45%.
Let’s say you invested $10,000 in IBB at the beginning of this year. Over the course of the year and in all future years you hold the investment, you would pay $45 in fees. If you hold it for five years, that’s $225 in fees. If you factor annual compounding at market returns, it would amount to $265 in lost returns. Over ten years, that’s $651. Do you have five ETFs charging high fees? Just imagine how those fees will add up!
Are the fees worth it?
They might be if the benefits align with your investment goals. Ensure you understand what you're committing to and whether your chosen fund is the best available option. In our example, you might decide that IBB offers the optimal broad exposure to biotechnology or prospects for the highest returns after evaluating other biotech ETFs.
🤝 How can Mezzi help?
Mezzi simplifies this process by automatically analyzing the ETFs in your portfolio. Did you know there are over 7,000 ETFs around the world? With the power of AI, Mezzi surveys the universe of ETFs and recommends alternatives that cost less but offer similar exposure. You can even leverage Mezzi to check the funds chosen by your financial advisor.
Join today to start:
- Saving on ETF fees
- Opt in to lower-cost ETFs with Mezzi’s AI-powered suggestions
- Ensure your current investments are in the lowest cost options
We’ll be doing the same for mutual funds in the near future.