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Masters in Business

At the Money: Why Fees Really Matter

Aug 28, 2024
Eric Balchunas, an ETF analyst at Bloomberg Intelligence, dives into the critical impact of investment fees on long-term returns. He highlights the trend towards fee reductions and the emergence of zero-fee ETFs, making them appealing to investors. The conversation reveals how even marginal fee differences can lead to significant growth over time. Balchunas also discusses the evolution from mutual funds to ETFs, emphasizing their lower costs and greater tax efficiency, ultimately suggesting that savvy investors should prioritize fee management for optimal performance.
10:34

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Podcast summary created with Snipd AI

Quick takeaways

  • The dramatic reduction in ETF fees over the last decade, termed the 'great cost migration', significantly enhances investor savings and returns.
  • Vanguard's influence on mutual fund fee reductions has revolutionized investment accessibility, driving competitors to adopt lower-cost strategies to stay relevant.

Deep dives

The Trend of Falling ETF Fees

ETF fees have been consistently decreasing over the past decade, with some ETFs now charging nearly zero fees. This fee reduction trend, described as the 'great cost migration,' significantly benefits investors, as entrenched competition among providers has driven prices down to rock-bottom levels. For instance, an ETF with a fee of 3 basis points costs a mere $3 annually for a $10,000 investment, which shows the extreme affordability that has become the norm in the market. As fee pressures continue, savvy investors can expect to see even greater savings and enhanced returns from their investments.

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