The Hidden Influencers of Investment Performance: Fees, Behaviour, and Taxes

When Australians think about growing wealth through investing, the focus is often on picking the right asset class, the best-performing fund, or timing the market. However, some of the most significant contributors to long-term performance are less visible — and often overlooked. Three critical factors can have a compounding impact on your financial future: fees, investor behaviour, and taxes. 

🏷️ 1. Fees: Small Numbers, Big Impact 

Every dollar you pay in fees is a dollar that’s not compounding for your future. 

While fees may appear modest on paper — say, 1% or 1.5% per annum — they can have a substantial long-term effect on your investment balance. Consider two portfolios, each starting with $100,000 and earning 7% per annum. One pays 0.5% in fees, the other 1.5%. After 30 years: 

• 0.5% fee portfolio = $574,349 

• 1.5% fee portfolio = $432,194 

  
  

That is a $142,000 difference, purely from fees. 

Types of Fees to Watch: 

• Management expense ratios (MERs) in managed funds and ETFs 

• Platform/admin fees in super and wrap accounts 

• Adviser service fees 

• Transaction or brokerage fees 

  
  

👉 Tip: Opt for cost-effective structures without compromising quality. An adviser can help you compare fees relative to service and performance. 

🧠 2. Behaviour: The Silent Performance Killer 

Investor behaviour — not market returns — is often the largest drag on portfolio performance. 

Studies (such as DALBAR's Quantitative Analysis of Investor Behaviour) show that the average investor underperforms the market due to poor decision-making: selling during downturns, chasing last year’s winners, or trying to time the market. 

Common Behavioural Pitfalls: 

• Panic selling during volatility (e.g. GFC, COVID-19 crash) 

• FOMO buying at market highs 

• Lack of diversification 

• Inaction or “set and forget” in unsuitable strategies 

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Behavioural coaching is a core part of what financial advisers do — helping clients remain disciplined, objective, and goal-focused during market turbulence. 

👉 Tip: Stick to a long-term strategy aligned with your risk profile and financial goals. Reacting emotionally to short-term movements can cost you years of gain. 

💰 3. Tax: The Controllable Drag on Returns 

Taxes reduce your investment returns — but with smart planning, their impact can be significantly minimised. 

Key Tax Considerations: 

• Capital Gains Tax (CGT) – triggered when selling investments for a profit 

• Dividend and distribution income – fully taxable if not franked 

• Superannuation – taxed at 15% in accumulation, 0% in pension phase 

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Without tax-aware planning, even a well-performing portfolio can leak value to the ATO unnecessarily. For example, frequently switching funds or shares may trigger CGT annually, reducing your compounding base. 

👉 Tip: Strategies such as holding assets for over 12 months (for CGT discount), investing via super, or using franking credits can help reduce tax drag. 

📈 Bringing It All Together 

Let’s compare two hypothetical investors, both earning 7% gross return: 

Factor	Investor A (Smart Strategy)	Investor B (Common Mistakes)
Fees	0.5%	1.5%
Behavioural Impact	+0.5% p.a. (adviser benefit)	–1.5% p.a. (poor timing)
Tax Impact	Minimal (tax-aware strategy)	Moderate (frequent CGT)
Net Return	~7%	~4%

Over 20+ years, the performance gap is enormous — not because of the market, but because of structure and behaviour.