How Half a Percent Can Ruin Your Retirement

by DR

Half a percent is not a big deal, right? After all, half a percent of $100,000 is only 500 bucks. Wrong! An extra 0.50% paid in mutual fund fees can can be the difference between a comfortable retirement and living on a shoestring budget. Yesterday we looked at How to Find the Hidden Cost of Mutual Funds, and today in our series of Making the Most of Morningstar, we looked at Determining the Cost of Your Mutual Funds. Here's why all of that is so important--The difference between paying say 0.5% and 1% in fees for your mutual funds is ENORMOUS over a 40 year (25 to 65) investment period. Here's the math (take a guess at the difference before you read on):


The Difference 0.5% Can Make
9.5%
$5,436,291
10%
$6,324,079
Difference:$887,808

Of course, some will say that the mutual fund that costs more will return more. My response is simple--How do you know? Cheaper is not always better, to be sure. But in mutual funds, spending less can be the best investment you'll ever make.

{ 3 comments… read them below or add one }

J at Home Finance Freedom June 21, 2007 at 1:42 pm

I give this post a thumbs up. “Spending less can be the best investment you’ll ever make” applies to much more than mutual funds.

Reply

Living Off Dividends January 16, 2008 at 9:44 am

great post!

Reply

aaron March 7, 2009 at 4:49 pm

You make profit when you buy, not when you sell – RDPD

Reply

Leave a Comment

Previous post: Making the Most of Morningstar: Determining the Cost of Your Mutual Funds

Next post: The Daily Dough (21 June 2007)