Chapter 5 · Mission 4 · 1982–2001
Costs: TER, fees, spreads, currency
TER: the yearly cost of a fund, taken every day from its value. You don't see it charged, but you pay it.
Goes with Mission 4: The silent enemy: costs.
The idea
In short
- 1TER: the yearly cost of a fund, taken every day from its value. You don't see it charged, but you pay it.
- 2Trading fee: paid each time you buy or sell (fixed, e.g. $1, or a %, e.g. 0.20% with a $15 minimum).
- 3Spread (buy/sell gap): the difference between the buying and selling price, a hidden cost on every trade.
- 4Currency fee: a margin charged when converting money, often 0.25–1% per trade.
- 5Custody and advice: yearly percentages on everything you hold.
- 6Key point: costs compound too. 1.5% a year is taken every year, also on what you had already earned.
In the data
What history shows
The same US stocks with each platform's yearly costs, 1928–1949
Real data, January 1928 to December 1949: years before any mission, so nothing is given away. Monthly returns from Robert Shiller and Aswath Damodaran.
Real figures
The numbers
Finish missions 3 and 4 to see these real figures.
Remember
Takeaways
Finish missions 3 and 4 to see the takeaways.
Practice, not scored
Quiz
1. $50,000 in a fund with a 1.5% TER instead of 0.1%: how much more do you pay the first year?
2. Why does 1.5% a year cost much more than 1.5 × 20 = 30% over 20 years?