The key is portfolio efficiency

When investing, there are things over which we have little control: the level of the exchange rate, the regulatory framework, etc., and others that do depend on us, such as the choice of vehicles (direct stocks/bonds, mutual funds, investment funds, etc.), the structure for investing—directly as an individual or setting up an investment company—among others.

Among the factors where you have practically total control is the cost structure of portfolios. Many times it's a factor that gets set aside. Information about costs can be hard to access, complex to digest and also changes over time. That said, it should be one of the main factors to consider when implementing an investment policy.

Compound interest—“the eighth wonder of the world,” in a phrase wrongly attributed to Albert Einstein—makes this dimension especially relevant.

Consider a strategy (before costs) with an expected return of 7% per year and two vehicles: one that charges 0.5% and another 1.5% per year. After 5 years, the lower-cost fund will perform 6.3% higher than the one that charges more, while after 25 years this difference extends to more than 100% between the two options.

Cost is not the only variable when investing, but striving to achieve greater efficiency must be among every investor's priorities, whatever it takes.

This column was originally published in La Segunda [LINK]