Fees and costs add up

The lesson in full

Every investment has a price tag: commissions, the spread, yearly fund fees and taxes. You pay them whether you win or lose.
The spread is the gap between the buy price and the sell price. You pay it, plus any commission, every time you trade.
Example: US$10,000 grows 7% a year for 30 years. With a 0.1% yearly fee you end with about US$74,000. With a 1% fee, about US$57,000. That small-looking fee costs about US$17,000.
Trading often multiplies costs. If each trade costs 0.1% of your money and you trade five times a week, almost a quarter of your money goes on costs in a year.
Common mistake
Myth: “1% is tiny.” If a fund earns 7% a year, a 1% fee takes about one seventh of your return, every year.
Compare the total cost before choosing any product or platform. Low-cost index funds and ETFs are one way to keep fees small.
Key takeaway
Costs are one of the few things in investing you can control. Lower fees and fewer trades mean more of the return stays with you.

Which is a cost of trading? The spreadThe spread is the gap between buy and sell prices that you pay on every trade. Salary and dividends are money coming in, not costs.
Why does trading often hurt returns? Costs are paid on every tradeEach trade pays the spread and any commission again. The more trades, the bigger the total bill.
Low-cost index funds help you... Keep more of the returnLower fees mean less is taken from your return. Market risk is still there.
Two funds earn 7% a year before fees. After 30 years, the one with a 1% fee ends with... Clearly less moneyFees compound just like returns. On US$10,000, a 1% fee leaves about US$57,000, against about US$74,000 with a 0.1% fee.