Most people have a dream of spending their golden years in a comfortable retirement. (Find out if you are on track to meet your retirement goals here.) Whether that means volunteering, spending time with family or continued work on a passion project, having the financial freedom to choose what you do with your time is a milestone virtually anyone would be thrilled to achieve.
To get there, it’s wise to save and invest a portion of your income every payday. If you can put away 10% to 15% of your paychecks (saving for your future is never out of reach), you should be able to maintain the same standard of living in retirement that you enjoy today.
But, you may be paying fees that are too high or even fees that you are not aware of. Some 401(k) plans and actively managed mutual funds charge high fees. Even an extra 1% in fees can be a real drag on your retirement. Let’s look at exactly how much an extra 1% in fees costs you when saving for retirement.
Calculating the impact of an extra 1% in fees
Investment fees might seem simple, but you can’t use the simple interest formula to calculate them, because while compounding interest and dividends can really boost the value of your investments, compounding fees erodes the value of those investments just like inflation.
Here’s an example using an investment fee calculator. Starting with an initial investment of $100,000 (though you can and should start investing with any amount) invested over 30 years with a 10% return and a 1% fee, the total fees would add up to $147,169. But, it’s even worse than that because you lose out on investing that $147,000 and the compounding returns on that amount. If those fees were 2%, you would pay $240,262 in fees over that time and face an even greater opportunity cost. Those are massive costs for such small percentages!
Keeping an eye on your money
As your portfolio value or investment time horizon increases, those fees get even bigger! Old school financial advisors often charge big fees and might even suggest mutual funds that charge more and perform worse for a bigger commission. Luckily, you have a lot more options to manage your money today, including digital advisors that charge a fraction of what you might pay a traditional financial advisor.
Low-fee exchange-traded funds (ETFs) charge a lot less than traditional actively managed mutual funds. Passive ETFs historically outperform the vast majority of actively managed funds. And, here are 5 reasons ETFs are better than single stocks. Evati uses only low-cost ETFs to help you avoid fees and maximize your returns.
Always keep fees in mind when investing
At Evati, accounts with a balance below $5,000 cost just $1 per month. Once you reach $5,000, you pay just a quarter of a percent (0.25%) annually.
Wherever you decide to invest, always keep fees in mind. What can easily be explained away as a “nominal” fee can really cost you in the long run. Those are dollars that belong in your account, not a Wall Street bonus. When you invest with Evati, more of your dollars can stay yours.