Performance Drag Can Grind Your Earnings to Dust

Performance drag is a phenomenon that has the potential to substantially decrease the returns on your investments. Here are the basics of performance drag and how it can affect you as an investor.

Performance Drag

"Performance drag" refers to the conditions that lead to an investment's not performing as well as it should. Performance drag ends up costing you money in the long run. One of the most common causes of performance drag is the broker commission. Every time you purchase stock, you are going to have to pay a broker a certain amount of money. When this happens, you will need the investment to move in a certain direction in order to make up for that commission.

Other Causes

In addition to commissions, there are other potential causes of performance drag. For example, the bid/ask spread is another source of performance drag. This costs you a little bit each time you make a trade. After a few trades, this can really add up and affect the performance of your investments. Timing is another issue that can add to performance drag. If you do not get into an investment quickly enough, you will potentially lose some of the profit that you could have made.

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