Like all good things in life, your retirement ain’t free. Not only do you have to put your own money to work, but you have to pay a 401k provider, mutual fund managers and other others to put your money to work via various fees and expenses.
Thing is, not all those costs are the same — some are more expensive than others, so ignoring these fees and charges when investing can actually impact your returns.
For example, say Mutual Fund A and Mutual Fund B both offer relatively similar exposure and performance in large-cap stocks. Fund A charges 0.5% of expenses, or $50 on every $10,000 invested, while Fund B charges 1.5%, or $150 on every $10,000 invested. Assuming a 6% annual return over 30 years, Fund A would cost you roughly $3,800 in expenses alone, while Fund B would cost you more than $9,500 — and that’s not even factoring in what you’ve lost in opportunity cost.
Here’s something a little less hypothetical: Online financial adviser FutureAdvisor says investors are losing more than $100,000 over the course of 40 years because of fees an expenses. Those numbers are real, and they’re real big. So know your fees.