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The fees charged for investments can be a crucial factor when determining where to invest and which type of asset to select.
Every investment incurs a cost, including opportunity costs, which ultimately means money redirected elsewhere is money not gained.
We have created this article to guide you through the various expenses in different investments so that you can navigate taxes and fees more effectively. Enjoy reading!
Why do costs matter?
The initial expenses of an investment might appear insignificant, but they are offset by the returns generated. Essentially, you not only forfeit the minor fees paid but also miss out on the potential growth that money could have yielded over the years ahead.
If you invested R$ 100,000 and earned 6% annually for 25 years without any expenses, you would have around R$ 430,000.
If you were charged a 2% annual fee instead, after 25 years you would only have around R $ 260,000.
The 2% annual fee you paid would reduce nearly 40% of your account’s final value.
Discover more about the various kinds of investment expenses.
New investors often lose money because they chase unrealistic returns when investing in various asset classes like stocks, bonds, mutual funds, or real estate.
Most individuals may not comprehend the concept of compound interest, which can lead to significant growth in wealth over time with each yearly profit increase.
Before beginning to invest, it is crucial to be aware of the fees and taxes associated with the returns or the assets being utilized.
Income Tax (IR) – Tax on income
Income tax on investments is a common form of taxation, focusing on income rather than the capital invested. In simpler terms, if there is no income generated from your investments, there will be no taxes such as IR or IOF imposed.
IR rates in financial applications decrease as the investment duration increases.
Some investment types like LCIs, LCAs, CRIs, CRAs, and encouraged debentures are not subject to Income Tax.
Taxes can often affect investments and potentially reduce income, so investors need to be mindful of this when making investment decisions.
Administration Charge
The administration fee is applied to individuals who opt for investment funds, whether fixed or variable income. It is intended to compensate fund managers and support their operational costs.
The fee is quoted annually but is collected daily based on a proportional calculation, with the administration rate differing for each fund strategy.
It is important to carefully assess the management fees of the funds before investing in order to select the options that provide the highest returns at the lowest expense. This way, the administration fee will not impact the long-term earnings of the investor.
Custodial charge
Custody fees are charges you pay a financial institution to oversee and handle your investments, which you are likely to encounter during your investment process.
It can impact various investment types, but we often hear about it more in relation to the custody fee for Direct Treasury, stocks, or ETFs (Exchange Traded Funds).
The custody fee for stocks or ETFs is charged on a monthly basis and differs among brokers, but some brokers waive this fee for their clients.
Emulsions
Emoluments, also referred to as trading fees, are predetermined charges applied by B3 for each transaction.
The amount fluctuates based on the type of transaction (regular or Day Trade), investor type (individual or funds and investment club), and the investment amount.
Two types of charges are applied, negotiation fees and settlement fees. Both fees are calculated as a percentage of the financial value of the transaction and the amount invested by each investor.
Rate of correction
A broker charges a fee for maintaining your investment account, which covers annual fees for account upkeep.
Some brokers do not require clients who transact a minimum monthly volume to pay fees.
Paying the brokerage fee can be more advantageous for larger investments. Additionally, there is a Service Tax (ISS) that varies between 2% and 5% depending on the city.
Rate of performance
The performance fee is a payment given to an investment manager for producing profitable results, unlike an administrative fee that is charged regardless of returns.
The collection occurs twice a year once the target is surpassed, typically resulting in a 20% fee on earnings exceeding the set goal.
Before selecting a fund, investors should assess if there is a performance fee and review the manager’s objectives.
How do expenses related to investments and fees charged by brokers impact profits?
Even a modest brokerage fee can grow gradually, and when combined with other investment costs, it can greatly diminish your portfolio’s overall earnings.
If your investments grew by 6% in a year but you incurred fees and expenses of 1.5%, your actual return is 4.5%. This discrepancy can have a notable impact on your finances in the long run.
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Some funds may have very low expense ratios but include additional front and back-end fees. Others might provide an initial or short-term advantage that will later escalate. Alternatively, they may lower the expenses of one fund while raising the costs of others to offset the difference.
Stay updated on the fees if you choose to invest.
There are certain aspects of investing that shouldn’t concern you, but costs play a crucial role in determining your success and are completely within your control. Therefore, it’s important to prioritize and carefully manage them.
Discover 8 common myths about investments and enjoy learning about them. Click here.
Are there investments available without any fees?
In Brazil, we are familiar with various taxes that can deplete our funds. It is important to assess the fees imposed to ensure they offer a good return on investment.
Knowing the rates is important when you begin investing.
Profitable investments without incurring investment fees and brokerage charges are available, such as in collective real estate financing.
Collective investment does not require a manager to oversee the funds, providing investors with the freedom to choose the most promising ventures.
Investors in real estate Crowdfunding do not have to pay investment fees when applying their money to real estate, boosting their investment earnings. The only significant factor in this type of investment is the IRPF, which is deducted at the source.
Collective property financing offers higher and more advantageous returns compared to traditional investments, without charging any administration fees. This allows investors to potentially earn greater profits by investing their entire amount.
In conclusion
Always make sure to evaluate investment rates before choosing an investment option.
You will have a diverse portfolio that aligns with your goals and profile.
Now that you are familiar with all the details regarding investment rates, it’s time to assess the choices and begin investing.
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