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Concept · Funds, wrappers and fees

What is a basis point?

Direct answer One hundredth of one percent. 100 basis points is 1%; 9 basis points is 0.09%, or $90 a year on $100,000. Fees, tax drag, and return gaps are quoted this way because the differences look small and the compounding is not.

A quick translation table: 10 basis points is $100 a year on $100,000; 50 is $500; 115 is $1,150. The site’s key comparisons in this unit are 9 versus 115 (retail versus adviser-sold harvesting), 0 to 30 (the long-run harvesting benefit), and 70 versus 190 (ETF versus mutual-fund tax drag). Read same harvesting, 9 basis points or 115.

Sources

  1. CFA Institute, Financial Analysts Journal (the unit as used in fee and performance reporting)rpc.cfainstitute.orgAny standard glossary defines it identically; replace with a plainer reference before publishing.

Used in

Eight tax levers, ranked by what they are worth Never selling is worth the whole 35 cents, the one-year line 17, an ETF about 120 basis points a year. Loss harvesting, the lever with the marketing budget, 0 to 30 after year five. Each one, priced. Same harvesting, 9 basis points or 115 Retail direct indexing charges 9 basis points a year. Through an adviser and a platform the same logic costs about 115. Against a long-run benefit of 0 to 30, the price decides the sign. The stock-bond mix alone swings twenty-year returns by up to three points a year Since 1985, moving from an all-equity portfolio to 60/40 has changed trailing 20-year annualized returns by as much as 3.1 points a year, before any strategy or wrapper choice. Two questions for any tax-savings pitch Does the benefit last past year five? Does the long/short version make sense below $5 million? The published evidence says no to both as general claims. How to ask, and what a good answer sounds like.

Related concepts

Tax cost ratioTax drag

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