Index Investing: From Theory to Practice · Dr MAI Huu Minh, TRAN Phan Bao Ngoc & HUYNH Nguyen Quoc BuuChapter 6 of 37 · Module 2: Theory
CHAPTER 6
Costs, Taxes and Compounding
The small numbers that decide your final wealth
Opening question
“The fund charges 1.5% a year and the market returns 10%. Why should I worry about such a small fee?”
In this chapter
- The power of compounding, and why it works against you on costs
- Bogle's "cost matters hypothesis"
- Visible costs: expense ratios, entry and exit fees, performance fees
- Hidden costs: trading, bid-ask spreads, market impact and cash drag
- How much of your final wealth fees take, by fee level and horizon
- Taxes on dividends and sales, including the Vietnamese rules
- Inflation and real returns
- The total cost of ownership
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This chapter is in the full book
Chapter 1 is free to read online. The full text of chapter 6 — with its tables, figures, worked examples and practice lab — is available in the complete edition of Index Investing: From Theory to Practice (Volume 1, NXW Investment Library).
Read Chapter 1 freeGet the full book — [email protected]Sections of this chapter
6.1 The power of compounding
6.2 The cost matters hypothesis
6.3 Visible costs
6.4 Hidden costs
6.5 How much do fees take over a lifetime?
6.6 Taxes
6.7 Inflation and real returns
6.8 The total cost of ownership