Don’t Ignore Disclosed Fees
The most obvious charges that 401k investors have to endure are the “expense ratios” of their mutual funds. You might have seen these on your portfolio’s documents and just shrugged them off. After wall, what’s the big deal about a 1% fee?
If you think that way, it’s time to change your mind-set — and in a hurry, because little fees add up fast. In real terms, that 1% fee is what is shaved off your 401k account for each year.
Let’s look at a practical example. Say you are investing $3,000 per year in your 401k and average a roughly 5% annual return. In 30 years, you’ll have a nest egg of about $210,000 with compound interest. But if you have to give up just half a percentage point and average only 4.5% annual returns, the final amount in 30 years will be just more than $190,000. That’s $20,000 less, or almost 10% shaved off the final amount!
So if you think your expense ratio doesn’t matter, think again.