"Beware of little expenses; a small leak will sink a great ship."
—Benjamin Franklin, Poor Richard’s Almanack
The notoriously thrifty Ben Franklin understood the great erosion that results from a slow drip of assets. Perhaps that's why he famously bemoaned the certainty of taxes, which to be frank, may not be quite immovable a force as the founding father implied.
That is, a tax bill may be an inevitability, but investors can delay or control that bill, which can lead to better investor outcomes.
There is little doubt that taxes are one of the largest costs faced by many investors today. Other investment-related fees—asset-weighted average expense ratios, for example—have fallen substantially in past decades.
And the potential for investors to benefit from cost savings is significant. We ran an analysis on the outcome of a hypothetical $100,000 investment with a 6% reinvested return at different cost levels. Whether those costs stem from transaction fees, advice, or Uncle Sam's cut, the inevitable outcome is clear. Higher costs crimp a portfolio's growth unless there is additional value derived from paying those costs.
