fees

There are many cases where you really do get what you pay for, and that can certainly be said for an asset with a low fee. Just because it’s low, that doesn’t equate to the returns being good. For example, you can certainly go out and get an inexpensive treasury bill, but you are not going to get a lot in return for it.

As the number of trading methodologies, mutual funds, alternative investment plans and stocks have been increasing exponentially over the last few years, it is important to be aware of the Net Internal Rate of Return or Net IRR. “This is a measure of a portfolio or fund’s performance that is equal to the internal rate of return (IRR) after management fees and carried interest have been accounted for.”

 

Here’s the Bottom Line: if the internal rate of return (IRR) on a project or an investment is greater than the minimum required rate of return, typically the cost of capital, then you should proceed.

Overall, just remember that fees shouldn’t be the major determining factor when evaluating against performance. If you have two portfolios, and both have the same exact investments in them and are being managed in the exact same way, then, by all means, you would be wise to consider the one that has the cheaper fees. You just need to make sure that the Net IRR for each is also similar before you make that decision.
Questions? Visit us at mooneylyons.com or call us at 1.847.382.2600. We are here to help.

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

References:

The Net Internal Rate Of Return – Net IRR. Investopedia.
Grayson, Linda. Internal Rate Of Return: An Inside Look. Investopedia. 24, March 2016.

 

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