401 k Hidden Fees and Expenses
A 401 k Is The Most Expensive Way to Invest Because it is Infested with Three Wealth Killers
- Market Risk
High Commissions, Fees and Expenses
Over a 30 to 40 year period, Commissions, Fees and
Expenses can reduce your 401 k accumulation by 33%. A $600,000 accumulation can be reduced by $200,000 to $400,000. In other words, without the commissions, fees and expenses your accumulation would be 50% higher.
Most 401 ks are invested in Mutual Funds. Annual cost of Mutual Funds are estimated to be 2.27% to 3.17%
So what? On the surface, 2.27% doesn’t seem like that big a deal.
But let’s assume that stocks return 7%, a modest assumption based on historical data. If you lose 2.27% in an actively managed fund to all these fees, it will consume 33% of your total return over a lifetime of investing.
This is the magic of compounding. With these fees, you’re losing 2.27% every year, but you’re also losing the interest or growth you would have enjoyed had you not lost the 2.27% to begin with.
In one year or even five years, that may not be a big deal. But in 10 years, it starts to hurt. In 20 to 30 years, as this problem builds up, it has more and more impact. And, according to Mr. Bogle, you end up losing almost 33% of your returns. Read more…