When I started investing, I ignored commissions. Not because I didn't see them. I just thought 1% or 2% was... insignificant.
"I'll earn 7% per year, what's 1%? I earn 6%. Still good."
That was a mistake. A very expensive mistake.
Today I understand: commissions are the biggest silent thief of your returns. And almost nobody talks about it.
The problem: we see 1% and think it's nothing
Imagine you have €10,000 invested. A 1% commission is €100/year. Seems like nothing.
Now imagine that €10,000 over 30 years. With 7% annual returns, it should grow to €76,000.
But with a 1% commission, it only grows to €52,000.
You lost €24,000. From 1% per year.
Still think it's insignificant?
That's the power of compound interest. But working against you.
Where commissions are highest
The highest commissions are in traditional banks.
When you go to your bank to open an index fund, they typically offer you 1% to 2% annual commissions.
Why? Because:
- They have physical branches (which cost money)
- They have employees (which cost money)
- They offer "personalized service" (which they charge for)
Those costs get passed to you. As commissions.
Meanwhile, specialized brokers (Degiro, Interactive Brokers, etc.) offer index funds with 0.10% to 0.30% commissions.
The difference is brutal:
- Traditional bank: 1.5% commission
- Specialized broker: 0.15% commission
- Difference: 10 times less
The trade-off: convenience vs money
Here's the dilemma every investor faces.
Option A: Stay with your bank
- Advantage: Convenience. Everything in one place. In-person support.
- Disadvantage: You pay 1-2% annually. That money is gone forever.
Option B: Switch to a specialized broker
- Advantage: Low commissions (0.1-0.3%). You save thousands over time.
- Disadvantage: Less "convenience". Digital interface. No employee to explain things.
Which is better? Mathematically, option B wins without question.
But I understand if you prefer the convenience of option A. Then you have to accept you'll pay more. Much more.
Other costs you ignore
Management commissions aren't the only cost.
There's also:
- Per-trade commission: Some brokers charge €5-€10 every time you buy/sell. Others charge nothing.
- Fixed vs variable commission: One broker charges €5 flat. Another charges 0.1% of the trade. Depending on how much you invest, one is better.
- Dividend reinvestment costs: Some funds reinvest for free. Others charge fees.
These small costs seem like nothing. But multiply them across 30 years and hundreds of trades.
They become thousands of euros.
My recommendation: choose wisely
Here's my thinking:
If you invest via DCA (fixed monthly contributions):
- You need a broker that does NOT charge per trade
- Or charges very low fixed fees per trade
- And has index funds with commission ≤ 0.30%
If you make one large initial investment and nothing else:
- Per-trade commission matters less (it's just one)
- But annual commission matters A LOT (it's 30 years)
Either way: compare before choosing.
Review:
- How much do they charge per trade?
- What's the annual fund commission?
- Are there hidden costs (taxes, reinvestment)?
The real-life example
I personally use a specialized broker with low commissions.
Did I sacrifice something? Yes: the convenience of having everything with my bank.
But how much will I earn more? A lot.
After 30 years of DCA investing, the difference between 1% and 0.2% commission is tens of thousands of euros.
Tens of thousands that could have been yours.
The conclusion that hurts
Commissions aren't a "detail."
They're the difference between retiring at 65 and retiring at 55.
Not because the market rises or falls. But because the money you earn gets stolen through invisible commissions.
Choose your broker wisely. The 30 minutes of research today is worth thousands of euros tomorrow.