Are My ETFs Or Mutual Funds Too Expensive? See How Much They Are Costing You

Learn how to maximize your retirement savings and passive investment returns by looking at the expense ratio (fees) of your ETFs and mutual funds. Higher-than-needed investment fees could cost you as much as half of your retirement nest egg over your lifetime in lost profits. There will always be some fee involved with investing, but paying more than you need to will substantially decrease the amount you have at retirement.

Investment fees could cost you hundreds of thousands of dollars over your lifetime in lost profits. See how and why, and how to do it better yourself. High fees are not required. You can likely make a better return by investing in super-cost ETFs on your own than you could buying high-cost mutual funds or having someone manage your money (because chances are, they won’t get you a better return than you could on your own with little effort).

In this article I’ll discuss how high fees can hurt you -- and paying 1% per year is very high in some circumstances. So we will look at what high and low actually are. I will also discuss some low-cost ETFs.

Summary Points on ETF and Mutual Fund Fees

  • You are paying someone (or a company), likely way too much, to give you returns that are sub-standard.
  • A 2% difference in fees could cost you half your retirement over 30 years. Even a 0.5% higher fee could cost you about 25% of your retirement over a long period of time.
  • There is an easy option to invest on your own, costing about 0.04% per year. Compare that to 0.7% to 1%, which are also touted as low cost, and you are paying more than 20x as much for the exact same product, year after year. That’s a huge difference and could equate to hundreds of thousands of dollars in lost profits over your lifetime. See the examples below.
  • What you could buy, called an Exchange Traded Fund (ETF) is probably exactly what your advisor or mutual fund is buying for 0.04% but then charging you 0.7% or 1.5%. I will discuss what this is in the article.
  • This ETF likely has outperformed your advisor or mutual fund every year, and will continue to do so -- because they take their fee. Cut out the fee and your returns go up.
  • So if you are a passive buy-and-hold investor, you are likely paying too much and getting too little. Here’s how to change that.

How Much Your Investment Fees Are Costing You

As a passive (buy and hold) investor, which mutual funds or exchange-traded funds (ETFs) you own can have a massive impact on your retirement savings. A 1% per year difference in fees, or even less, can cost you hundreds of thousands of dollars over a few decades. The numbers below illustrate how.

Of course you want to own mutual funds, ETFs, and investments that will go up over time, but you also want to reduce the fees and costs associated with those funds. If two similar investments return 10% in a year, but one charges a 1.5% fee each year while the other charges you 0.4%, the one with the lower fee is obviously a better choice.

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