Finance Tip of the Week: Savings/Investments
by Gareth Cotten on 09/04/10 at 10:02 am
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Always know what costs you’re paying. With pretty much any savings or investment product, there are going to be costs involved. They could be called admin fees, management fees, monthly fees, performance fees, or just about anything.
The point is that you are coughing up for them, and they’re coming out of your pocket. They could be upfront commissions paid to the salesman who signed you up for the investment, or they could be ongoing, monthly costs (a fixed fee or percentage). Whatever product or investment vehicle you’re looking at putting your hard-earned money into, make sure you know what the fees and associated costs are going to be.
In most cases, the person signing you up has to divulge these amounts to you, but they can be skimmed over if you’re not alert to them. There’s a great quote that goes: “You get what you don’t pay for.” Basically, the lower the fees, the less money is bled out of your investment, and the more money is left to grow and be re-invested. Always do your sums.
Say, as a simple example, you’ve got a couple of thousand bucks stashed in a money-market account, and it kicks up a hundred bucks a month in interest earned. You picked that account because it had the highest interest rate on offer at the time. What you didn’t realize was that there was a monthly management fee of sixty bucks. So you’re actually only coming out forty bucks ahead. If you’d put the money in that simpler, straight-up savings account you also looked at, you’d be earning a bit less interest (say seventy bucks), but there are no monthly fees, so you’d actually be coming out better off in the end. Can you see the difference that fees can make? Always, always, always ask what the costs are…
Gareth Cotten is one of the growing breed of SA entrepreneurs with that ‘world-domination’ look in his eyes. Gareth runs the coaching and consulting practice 'Good Advice'. Gareth is also the 'course convener' for the University of Cape Town (Law@Work) Start and Manage a Small Business course and the University of Cape Town Basics of Financial Management course. View more articles by Gareth Cotten.
Tags: Business/Finance, investment, savings
