How Investment Costs Eat Your Wealth—and Ways to Cut Them

Are you unknowingly giving away a chunk of your hard-earned money to financial institutions? Hidden fees and overpriced financial products can silently drain your wealth over time. The good news? With a little effort and a few smart strategies, you can take control, reduce unnecessary costs, and potentially save thousands—keeping more of your money working for you!

Now’s the Best Time to Save Big

January is always buzzing with requests for product reviews and assessments, and I uncover significant savings opportunities daily. Did you know that hidden fees in financial products—from savings accounts to ETFs—can silently drain your wealth? These seemingly minor costs can add up to tens of thousands over time, eating into your returns and delaying your financial goals.

In my daily practice, I’ve seen this firsthand. That’s why I’m sharing real-life examples to help you make informed decisions, reduce fees, and keep more of your money working for you. Here’s how to start spotting and cutting these costs:

1. Understand the Impact of Fees

Even seemingly small fees, such as a 1% annual management fee, can have a massive effect over time. For example, on an investment of $100,000 with a 6% annual return, paying 1% in fees instead of 0.3% over 15 years could cost you $21,788.

But the impact becomes even more dramatic over longer periods! In 30 years, the difference grows exponentially. With the same investment and annual return, paying 1% in fees results in significantly lower growth compared to 0.3%. Over the long term, even a small percentage difference compounds into tens of thousands of dollars lost—money that could have stayed invested, earning more for you!

2. Compare Before You Commit

Before choosing any financial product, take the time to compare. Look at expense ratios for ETFs, management fees for funds, and even account fees for banking products. Many tools and platforms make it easy to analyze and compare these costs at a glance, for example: fintech compass for more global data, moneyland if you are in Switzerland or moneysaving expert if you are in the UK.

3. Choose Cost-Efficient Options

Low-cost index funds and ETFs often outperform higher-fee actively managed funds in the long term. Similarly, consider robo-advisors or DIY investment platforms, which typically charge lower fees than traditional advisors.

Studies in Switzerland reveal that two-thirds of over 4,400 analyzed portfolios consist of in-house bank products, indicating a potential bias toward prioritizing the bank’s own offerings during consultations.

Furthermore, the majority of these portfolios are dominated by actively managed funds, which, can be up to four times more expensive than passive solutions.

Look at some of the examples hitting my desk this January:

I ask myself whether the costs vs. performance of this product are justified. In my opinion, the costs are very high.

Strategy fund, global exposure...and the fee structure is 3.06% p.a.:

Imagine the saving if this person would swap to a low-cost global ETF at 0.2 or 0.3%!

4. Ask the Right Questions

When working with financial advisors, ask about all fees upfront. Are there hidden fees, transaction costs, or trailing commissions? Transparency is key.

Ask your providers or advisers to provide transparency not only about the percentage fees you will be paying but also by calculating the actual fees based on the amounts you plan to invest.

When evaluating your fees, here are some points to consider:

• Actively Managed Funds: If your fund is labeled as "active," pay close attention—there may be cheaper alternatives available. Fees between 0.8% and 1% should raise a red flag and warrant a closer look.
• ETFs and ETPs: Depending on the product, these should generally cost no more than 0.5%. Many providers calculate averages based on your portfolio structure and strategy, typically falling between 0.2% and 0.4% for these products.
• Management Fees: These fees are usually in addition to the costs of the products you hold and cover the management of your portfolio. In Switzerland, online wealth managers typically charge between 0.25% and 1%. For a detailed comparison, check the list on Moneyland.

5. Monitor Your Costs Regularly

Regularly review your financial products to ensure you're still getting good value. Fee structures can change, and new, cheaper options may become available.

Final Thought: Your financial success shouldn't be hindered by excessive fees. While fees play a critical role in determining your overall returns, it's equally important to consider performance (but that is for another edition of Wealth Whispers - stay tuned!). However, in most cases, fees make such a significant difference that they can outweigh any performance advantages. By staying informed and proactive, you can keep more of your money growing for you. Small changes today can lead to big differences tomorrow!??

Are your finances ready for 2025?

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