You’re paying fees to invest. Even if you don’t think you’re paying fees to invest, you are still paying fees to invest. All mutual funds and all exchange traded funds (ETFs) have management fees called expense ratios. It is okay to be paying fees for your investments, but the goal for all of us should be to minimize the fees we pay in relation to the returns we get from our investments. I’ve written about this before (“One Easy Way To Give Yourself THOUSANDS More In Retirement”), and it is just as relevant and important as it was then. I’m revisiting this because I recently came across a PBS documentary called Retirement Gamble. I recommend watching the whole thing (it’s 53 minutes long, and you can adjust the playback speed on YouTube if you want). But even if you don’t watch the entire thing, please at least watch six minutes of the video. Start at minute 22 and watch through minute 28. This will explain how much fees can cost you over the long term. Below are a few tables to show how varying investment fees eat away at your returns.
| Beginning Balance | Years Invested | Growth Rate | Fees | Ending Balance | Reduced Nest Egg Size From Fees | Percent Loss due to Fees |
| $10,000 | 30 | 8% | 0.03% | $99,755 | $872 | 0.9% |
| $10,000 | 30 | 8% | 0.5% | $86,578 | $14,049 | 14.0% |
| $10,000 | 30 | 8% | 1.0% | $74,434 | $26,193 | 26.0% |
| $100,000 | 30 | 8% | 0.03% | $997,249 | $9,017 | 0.9% |
| $100,000 | 30 | 8% | 0.5% | $865,775 | $140,491 | 14.0% |
| $100,000 | 30 | 8% | 1.0% | $744,335 | $261,931 | 26.0% |
Just avoiding excessive fees can make a huge difference when it comes to retirement. Over 30 years of investing, even 0.5% per year in fees can shrink your nest egg by 14%, and a 1% fee can shrink it by 26%. Many of the large brokerages (Fidelity, Vanguard, Schwab) have very low-cost index funds.
If you’re in the military or work for the federal government, the Thrift Savings Plan (TSP) has pretty low expense ratios. However, if you have any other investments, you should definitely be aware of the fees you are paying. When you are looking for fees, they are usually called “expense ratios.” If your employer has a retirement plan, you should look into the funds they have and the associated fees the funds charge. If they are too high, you should ask about getting them replaced with lower cost alternatives.
One of the most important long-term aspects of investing is how much you’re paying for your investments. The more fees you pay, the smaller your nest egg will be. When selecting funds to invest in, make sure you check the fees. It could make a big difference in your future.
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