Minimising costs is a vital part of every investor’s strategy. Unlike many other purchases in life—where paying more can yield better quality—investing works differently. The more you pay in fees, the less you keep, because every dollar spent on management fees or trading commissions is a dollar that doesn't grow for you.

Here are three key reasons to stay vigilant about investment costs…

>Small fee differences can compound into big losses
A few percentage points may seem trivial, but over time they can significantly erode returns. Thanks to the power of compounding, even slight differences add up.

For example, a $100,000 portfolio growing at 6% annually over 30 years could reach $532,899 if costs are kept to 0.25% per year. But if fees are 0.62% annually, the same portfolio only grows to $477,141—a difference of over $55,000.

>Costs are one of the few things you can control
While market performance is unpredictable, investors can choose lower-cost products. Index funds and ETFs typically charge less than actively managed funds. Over time, these lower fees can lead to better outcomes—especially since many active managers struggle to consistently outperform their benchmarks.

>Taxes are another cost you can manage
Though taxes are inevitable, how you invest can affect your tax bill. Index ETFs, which often follow a 'buy and hold' approach, typically have lower turnover. This can reduce capital gains distributions—and thus, capital gains taxes—compared to actively managed funds.

If you’re unsure of the tax implications for your personal situation, consult a licensed financial advisor.

Rick Maggi, Financial Advisor Perth, Westmount Financial