The chart below, published by the SEC, shows how a small difference in fees from one fund to another can add up to substantial differences in your investment returns over time:
John Bogle, founder of the Vanguard Group, reported in his 2007 classic, “The Little Book of Common Sense Investing,” that over the 25 years between 1982 and 2007, the stock market index was providing an annual return of 12.3 percent while the average fund investor was earning only 7.3 percent a year after mutual fund expenses. That’s a big chunk of returns disappearing in fees!
Be Aware of Investment Fees
When considering an investment in mutual funds, keep the following in mind:
- A fund with high costs must perform better than a low-cost fund to generate the same returns for you.
- The more you pay in fees and expenses, the less money you will have in your investment portfolio to compound over time — and that can have a huge effect on the size of your retirement nest egg.