So often I see Sharesies recommended to new investors looking for low cost investing and it is the wrong recommendation.
Or it should at least come with a warning.
Sharesies is not low cost for new investors.
Sharesies does however provide a very good platform, that is arguably easier to use than its competitors platforms.
There is a cost to this though.
Sharesies is expensive for beginners
Let’s assume Kylie wants to invest $100 a month. Let’s say she allocates:
$70 a month to the Total World Fund (TWF)
$20 a month to the NZ Top 50 fund (FNZ)
$10 a month to the Emerging Markets Fund (EMF)
For Simplicity sake we will assume an after tax (before fees) return on each fund of 5%
Here’s how much this will cost Kelly in the first year:
Closing balance: $1,233
Annual fee ($): $26.91
Annual fee (%): 2.2%
$26.91 may not seem like much in fees, but expressed as a percentage this is 2.2% of first year funds under management.
2.2% is more than many active fund managers charge, yet the manager is passive.
Subtracted from returns of 5% and you are left with 2.8% in the pocket. Not so rosy now.
Transfer from Sharesies to InvestNow
Let’s say that Kylie realises Sharesies is expensive in the beginning and moves after 3 months to InvestNow. She can’t move immediately to InvestNow because they require a minimum of $250 to get started.
So after 3 months of Sharesies and 9 months of InvestNow using the same funds, Kylie’s numbers will look like this:
Closing balance: $1,245
Annual fee ($): $13.41
Annual fee (%): 1.1%
An extra $13.50 or 0.9% extra in her pocket.
Fees of 1.1% are better, but still not ideal for passive index funds. The only reason it is this high is due to the first three months of being with Sharesies.
Sharesies fee structure
The reason for the stark difference for beginners is with Sharesies fee structure.
Even though Sharesies attract beginners, their fee structure does not benefit beginners at all.
Quite the opposite in fact. It punishes beginners in comparison to other passive fund providers.
The $18 a year fee for balances under $3,000, and $30 a year fee for balances over $3,000, is a high percentage when compared to low investing amounts of less than $10,000 in particular.
After which, the annual fee becomes spread out over larger amounts so does not have as much as a negative impact.
Final Thoughts
I’m not here to rain on the Sharesies parade. They have done a great job at attracting investors.
Investors that would not have been investors otherwise, so that is a wonderful thing.
All I want is to have more informed investors. To have Sharesies so frequently recommended for beginners when their fee structure is obviously not at all suited to beginner investors is absurd.
Well over 1% in fees in the first couple of years for many investors is how much you would expect to pay active managers. Not passive managers.
If someone understands the extra costs but is happy to pay for that due to the usability aspect of their platform then full credit to you.Or if Sharesies easy to use platform is the difference between you investing or not then great.
But I can bet my bottom dollar there are a significant number of people unaware of the impact of the Sharesies fees on their balance.
As with all investing, one of the golden rules is to know what you are invested in.
*** There is a follow up article to this piece. You can read it here***
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