Your eyes do not deceive you. These two charts show the devastating effect of fees compounded over many years of investment.⁣‎
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On the left is a typical index fund with a very low expense ratio of 0.04%. Compounded over 40 years, the fees eat away about 1.4% of the total potential value, leaving the investor with $446,056.⁣‎
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On the right is an example of a mutual fund bought through a financial advisor. The financial advisor often has a incentive to recommend a high fee fund and may charge a sales load (transaction fee) as well. The total 2% fee doesn’t sound terrible, but compounded over 40 years it erodes 52% of the potential growth, leaving the investor with less than half, $217,245.⁣‎
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This is the plain and brutal math of these two fees compounded over time. When you’re looking at any investment, make sure you understand the fees involved. ⁣‎
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If you work with a financial advisor, make sure you’re aware of the expense ratio of all of the funds you’re invested in, any annual account fees, monthly maintenance fees, 12b-1 marketing fees, sales loads, etc. Some of the fees may not appear on your statement, but are charged internally in the funds. ‎
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As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.‎
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– Jeremy‎
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via Instagram