Psychologie a chování
Ignoring Fees: How Minor Costs Can Erode a Large Portion of Your Return
Key takeaways
- Hidden currency conversion fees can easily reach 0.5–1.5% on each transaction.
- Compounding works in reverse as well — small costs multiply over decades.
- Fund TER, spread, and the broker's forex fee are three distinct cost layers.
- Always compare total costs, not just TER — that is only one piece of the puzzle.
- When choosing a broker, verify exactly how currency conversion is charged.
Overlooking currency conversion and hidden fees is one of the most costly investment mistakes — on paper they look like a trifle, but over twenty years they can erode tens of percent of your return.
Where Fees Hide
Every investor has heard of TER — the annual cost of a fund. But that is only the visible part. The second layer is the broker's spread: the difference between the ETF's buy and sell price. The third, least visible layer is the forex fee, which the broker charges when converting koruna to euros or dollars. This fee varies across platforms from practically zero to 1.5% of the amount transferred — and you pay it on every purchase and sale.
The Math That Hurts
Imagine you invest CZK 3,000 per month for 25 years with an average annual return of 7%. Without unnecessary costs, you grow to approximately CZK 2.4 million. Now add an annual cost burden of 1% extra (a combination of higher TER and forex fees). The result drops to approximately CZK 2 million. That is CZK 400,000 drained by fees — without ever having paid it directly from your account.
How to Avoid the Mistake
- Before choosing a broker, look up the specific forex conversion rate — search for "FX fee" or "currency conversion fee" in the fee schedule.
- If you choose ETFs denominated in euros and your broker charges a low forex fee, you save compared to USD variants.
- Compare broker selection not only by zero commissions but also by total cost profile.
- Track the total cost of the investment: TER + spread + forex + any account maintenance fees.
Why We So Often Overlook This
Fees are "invisible" — they don't deduct from the account like an expense, the investment simply grows less. The brain handles this simply: it ignores it. Yet every additional 0.5% per year means approximately 10% lower final wealth over 20 years. Paying close attention to costs belongs among decisions as important as choosing a passive strategy.
FAQ
What is a forex fee at a broker?
A fee for converting currencies, for example koruna to euros or dollars when buying a foreign ETF. It typically ranges from 0% to 1.5% of the amount transferred and you pay it on every transaction — on both purchase and sale.
How large is the impact of minor fees over 20 years?
Very large. A 1% annual cost difference reduces the final return over 20 years by approximately 20%. Thanks to compounding, this effect multiplies — the longer the horizon, the more painful the result.
How do I find out the actual costs of my broker?
Go through the broker's fee schedule and look for items such as "FX fee," "currency conversion," or "spread." Compare the fund's TER with these items — the total cost is the sum of all three layers, not just TER.
Is it enough to choose the fund with the lowest TER?
No. TER is only one layer of costs. A broker with a low-TER fund but a high forex fee can ultimately be more expensive than a combination of a slightly higher TER and zero conversion.