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Principle #10:Fees and Commissions

How you implement your asset mix and construct your investment portfolio is as important as determining the proper asset mix, and proper implementation will greatly impact your overall performance.

As an investor, you cannot control interest rates or the stock market, but you can control the amount of fees you pay. The first step to minimizing fees and commissions is to know the amount of fees you pay, including hidden fees.

The impact of fees paid on performance is significant. For example, a portfolio of $100,000 in mutual funds with an average Management Expense Ratio (MER) of 2.5% will mean $2,500 per year in management fees. If your portfolio is going up by 20% per year you may not be too concerned, but in the future the returns from the stock market are expected to be lower - perhaps in the range of 6% to 8%. If your mutual fund earns 8% before fees your 2.5% MER now represents over 30% of your total gross return.

What is important is the value you receive for the fees paid. If you are investing in mutual funds that are consistently outperforming the stock market then you are receiving good value and the fees are well earned. On the other hand, if your mutual funds are consistently under performing, then the fees represent an unnecessary cost.

For the average investor, over a lifetime of investing, the difference between a 1% fee and a 2% fee could easily be over $100,000.

All fees should be disclosed in the Investment Policy Statement.