In a down market,especially when many investment portfolio values have been slashed by 30 or 40 percent over the course of a year,it’s become painfully apparent that a large part of those losses comes in the form of the fees you pay to invest your money. Over a period of several decades,from first investment to retirement,investment costs can eat up tens and even hundreds of thousands of dollars,destroying the real rate of return of a mutual fund.
For example,an initial investment of $50,000 over a period of 25 years at 8% would grow to $342,423. However,if the gains are 6% annually due to management costs and related fees,that number drops to $214,593 –a difference of $127,830. Even a difference of one percent can be huge over time –in 35 years,receiving 8% annual on $50,000 yields 739,267;compare this to the 533,829 from a 7% return on the same money.
For the average investor,most investment fees fall into one of three categories:mutual fund expenses,investment advisor fees and brokerage commissions,the per-transaction trading fees for buying and selling individual stocks. Mutual funds have some of the highest expenses,with exchange-traded funds (ETFs) usually somewhat lower.