When it comes to investing for retirement, keep an eye on the
fees you pay because, over time, they can have a significant impact
on the value of your portfolio.
Consider two investment funds: the first charges an annual fee
of 1%, and the second charges 2%. That single percentage point
difference is actually quite significant. The fund charging 1% is
50% less than the other fund; or, put another way, the fund
charging 2% is 100% more expensive.
The Effects of Compounding
The impact of fees compounds over time. You don't just pay
extra fees, you lose the growth potential on that money. Let's
compare two $100,000 portfolios earning 8% per year (before fees)
for 30 years. The only difference between the two of them is the
fees these portfolios pay. Portfolio A pays 1% in total annual fees
for a 7% return net of fees. Portfolio B pays 2% in total annual
fees for a 6% return net of fees.
