For anyone who has an investment fund, be it a retirement account like an IRA or 401(k), or investments in a taxable account, there’s a very interesting short article at Vanguard’s website about how much investment fees accumulate over time. One example is that a fee of 1% will have cost you more than 25% of your total investment after 30 years.
The annual fees are generally given as the expense ratio (ER) of the fund. Many actively managed mutual funds have an ER of around 1%. Most index funds and ETFs have ERs of 0.1% or less. The Vanguard article was a real eye opener.
The weighted average ER for all holdings in my wife’s and my combined portfolio is 0.12%. I would like it to be lower, but the only bond funds in our 401(k) have ERs of 0.45% and 0.46%. Still, 0.12% is much better than the typical actively-managed mutual fund ER, which averaged 1.12% in 2012.
The equation from the Vanguard article shows that after 30 years with an ER of 0.12%, we will have only paid 3.53% of our total accumulated investment value to the brokerage firms, rather than 28.4% from an ER of 1.12%.
I would rather keep more of our own money than let the brokerage firms have it. Just something to keep in mind.