So what our mutual fund fees and how do they affect us in this video I'm going
to go over mutual fund fees and just general fees associated with paying
someone else to manage your money and the damage that that has on your returns
and portfolio gains over your lifetime
hey how's it going this channel is all about trading the stock market while
allowing you to maintain a full-time job or trade as a full-time job so if you're
new here consider it subscribing and today we're going over management fees
anytime you invest in a mutual fund or just have someone managing your money
for you it's gonna cost money because they are providing you a service and
that comes out in fees usually called expense ratios on mutual funds these
expense ratios can vary based on the fund depending if you're in a mutual
fund an index fund or either having a personal finance manager manage your
money for you or even if you're investing in a hedge fund but generally
for mutual funds you will have either passively or managed funds and passively
managed funds means the fund manager really doesn't do that much with the
fund they will buy something and hold it for the long term meaning they really
don't have to put that much work into it and so the expenses will cost less and
that's why you will have a lower expense ratio with more actively managed funds
they have a higher expensive expense ratio and fees associated with those so
a mutual fund an actively managed mutual fund can have pretty low expense ratio
compared to something like a hedge fund where they are managing it hour by hour
the major setback though about investing in a fund managed by someone else is
they all have fees the fees can sometimes off set your gains by a large
margin even though you may be getting a good return on your money you could be
doing just as good by yourself but to dive in on how these fees work is the
fees are always calculated on your total account assets
or that year so if you have an expense ratio of 1%
they don't take 1% of your profits they take 1% of your account so if you have a
$10,000 account they will take $100 away from your account at the end of the year
when they take those fees out this may not seem like that much money if you're
making 10% return a year on your $10,000 so if you're making $1,000 a year
losing that hundred dollars to make that doesn't seem like that much especially
when all you did with your money was just put it in a fund and just leave it
for the year that seems pretty sweet but the idea is you're losing that money
over and over and over every year and if you're investing for the long term like
40 or 50 years that can really add up and because that money isn't in your
account every year it's not getting compounded on over your lifetime so to
show you what I'm talking about here is a theoretical $10,000 account over 50
years with 10% return on it and I think with life expectancy increasing pretty
rapidly it's smart to plan for living a long life and that's when these fees
show their damage to your growth more and more the longer you have them so
with this there are five different accounts with different fees associated
with them and you can see that initially 0 versus 1% B over that time is a huge
amount it's almost pushing double the growth
which is kind of mind-boggling most passive funds like index funds or
passively managed mutual funds those will be under that half a percent
expense ratio per year more passively managed funds or passively managed
portfolios we'll be over that hat person so more
actively managed mutual funds or actually managed portfolios or just
personal finance managers or then even hedge funds those will definitely be
over 1% personal finance managers and hedge funds will generally be one or two
percent expense ratio and then hedge funds will even take 20 percent of their
profits as well so their expenses will be a lot more and one thing I do want to
point out is even though these are a lot easier way to invest these people don't
care about your money all they care about is giving you a good enough return
to keep you around and keep you in their pocket so then they and make that huge
paycheck from that expense ratio you are the one that cares about your money the
most and no one will care about it more than you so I think that's why it is
extremely important to if you have the time or the interest at all to look into
managing your own money even on a really light level you don't have to be day
trading or doing all these complicated things all the time you can just buy a
stock and hold it for a year a couple years and you can still get good returns
or keep up with the market without having to pay these kind of fees
comparing fees just to pick a fund isn't always the best way to do that either
though you can have a fund with high fees but also a higher return but I do
want to stress that past performance definitely is an indicator that that
fund will do good in the future but those fees will always be there eating
away at your money so it generally is better to if you want to go the more
passively or fund management kind of investing
try and get one with the lowest fees possible and really never go over 1%
there's a ton of passive index funds or mutual funds now and their expense
ratios are really low they are getting a lot better even less than 0.1% so the
gap is closing but in the long run it still begins to add up for a lot of
money and you may even be able to - better than the stock market learning
about the stock market yourself and being able to invest and buy stocks
yourself hey thanks for watching this video if you want to learn more about
actively managing and learning how to manage your own money make sure to
subscribe to the channel I'll be diving a lot more into that in the future and
if you have any questions right now make sure to ask them in the comments below
hit that like button and I hope to see you the next video