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I am a bit confused as to which expenses eat up most of the investment.

Some brokers have low sales commission but the foreign exchange spread is high. Some have higher sales commission but lower foreign exchange (I am not residing in US that's why I included it in the equation).

And is it correct that the expense ratio eats up the most of your investment among these expenses?

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There are more than a few scenarios here where I'd argue the answer will vary considerably:

If the investment is held for a short time span, then it is most likely that the front-end or back-end load would eat up a lot of the return as this is where you can end up paying 5% or more which is quite a bit compared to some low expense ratios.

On the other hand, if you plan on holding onto the investment for decades, then the expense ratio may well be what eats most of your return as if you hold the fund for 30+ years, the expense ratio would likely add up to more than any sales charge.

The foreign exchange spread would be hard to consider how to factor properly into this as how many different options do you have to convert from one currency to another here?

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You're looking at it wrong.

Sales commission and foreign exchange spread affect the cost of purchase/sale. Expense ratio affects the gains, as you're paying it as long as you hold the investment. These are not mutually exclusive.

Sales commission and the exchange rate spread are paid at the same time and to the same entity (your broker), so why separating them? Call it "purchase fee" and compare the total.

The expense ratio is something you pay to the fund (I assume you're buying US ETFs/Mutual Funds from Singapore, right?), and it is a percentage of your holding that reduces your gains. So if the fund earned 10% but has 1% expense ratio - you'll see on your account 9% gain (annualized, of course).

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  • Yes, I understand that all these expenses are incurred when you buy ETFs/Mutual Funds. I'm not separating them. Just want to understand terminologies and how one affects your overall investment. May 21 '13 at 6:12

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