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):
| $5,436,291 | |
| $6,324,079 | |
| Difference: |
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.
- How to Find The Hidden Cost of Mutual Funds
- Do low cost mutual funds outperform high cost mutual funds?
- 20 Model Asset Allocations With Specific Mutual Fund Suggestions
- Beginner’s Guide to Asset Allocation: Actively Managed vs. Index Mutual Funds
- Richard Ferri on whether an investor should buy ETFs or mutual funds
{ 3 comments… read them below or add one }
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.
great post!
You make profit when you buy, not when you sell – RDPD