Fees- They REALLY add up

Another post inspired by my workshop on “Women & Money” at The Riveter!

I want to challenge everyone to do one thing today - look up your current investment portfolio and find out what fees you are paying.
The tricky thing about fees is they go by many different names. Nerdwallet does a great overview of the various fee types. To find out what fees you are paying, it may be quickest to actually call up the institution that offers you your investment account and ask them to review them with you. In addition to any fees the institution that runs your account charges, you also pay fees on whatever mutual funds are contained within your account. It is not uncommon to find that your 401k or IRA is charging a 1% fee, and while 1% doesn’t sound like much. It really adds up.

Here’s an example. Let’s say that you invest $10,000 in a mutual fund that charges you a 1% fee. You earn 7% annually in interest and the money sits for 40 years. How much will you have at the end of 40 years? And how much will you pay in fees?

Below is the graph of how your $10,000 would grow over 40 years. As you can see in the chart below in dark blue, you would earn $150,000 from your $10,000 investment. Pretty great, huh? The light blue bar represents what you would get to keep if you were charged .5% annually, or $124,000 (that’s 17% lost to fees). The green bar represents what you would keep if you were charged a 1% fee, or $103,000 (that’s 31% lost to fees). So a 1% fee over 40 years ends up costing you 31% of your total gains!

Growth of $10,000 over 40 years at 7% interest, with 0%, .5% and 1% fees

I strongly recommend that you run the numbers with your own inputs and see how the fees you are paying will impact your investments. While it is not uncommon to be paying a 1% expense ratio for your mutual funds, there are less expensive options out there. The same goes for your financial advisor. It is not uncommon for a financial advisor to take 1% as their fee. Keep in mind that this will be in addition to the fees for the mutual funds your advisor actually picks! The important thing is to be aware of the fees you are paying so you can decide if they are worth it to you. If having an advisor offers peace of mind, than by all means, it is a good investment. Just know that there are other options available if you’re willing to spend a little more time researching and managing your own money.

The inputs to the calculation above can be found below.