Lesson 1 of 2 · 7 min read
The costs you don't see
You see the trading fee. The rest is quietly taken off your return.
Four kinds
First, trading fees: what your broker charges per purchase. Second, a fund's ongoing charge, usually shown as TER, taken off the price daily without you ever getting an invoice. Third, the gap between bid and ask, which you pay the moment you buy. And fourth, currency costs if you buy in dollars with euros. Only the first appears on your statement.
Why half a percent is enormous
Pay in for thirty years and the difference between 0.2 and 0.8 percent in ongoing charges costs you roughly a fifth of your final amount. Not because 0.6 percent is a lot, but because you pay it every year on a growing balance, and that money never compounds again. Costs are the only part of investing you can control with certainty. Returns aren't.
In practice
10,000 euros, 30 years, 6 percent gross. At 0.2 percent costs you keep roughly 54,000; at 0.8 percent about 45,000. Same market, same risk, 9,000 euros apart.
What to check in a broker
Look past the buying fee: is there a custody charge, currency conversion, a fee on foreign dividends, or a per-trade rate that makes small monthly contributions unattractive? For someone paying in 100 euros a month, 2 euros per trade is already 2 percent in costs before anything happens. In that case find a broker with free recurring contributions.
Stocky says
Convert your costs into a percentage of what you pay in. 2 euros sounds small; on 100 euros it's 2 percent.
Remember this
- Trading fees, fund charges, the bid-ask gap and currency costs. You see one.
- Half a percent a year costs almost a fifth of your final amount over thirty years.
- With small monthly contributions, fixed trading fees hurt most.
There is a quiz for this lesson
3 questions that check whether it stuck. They live in the app, because a quiz nobody grades teaches nothing.
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