Fees Are Killing Your Investment Portfolio - PIC

Fees Are Killing Your Investment Portfolio

My Strategic Dollar Investing 13 Comments

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If you’re anything like me, you subscribe to the Coffeehouse Investor’s way of investing and you’ve learned How to Build Wealth, Ignore Wall Street, and Get On with Your Life. This philosophy means you put your money in an investment portfolio that is designed to hit the stock market average with as little attention to it as possible.

This is a great approach. One that I both participate in and recommend to others. Why? Because it’s: 1) easy, 2) less stressful and 3) shown to have good returns over time. I’ve left one of the reasons out. Can you guess what it is? Seeing how this post is about fees killing your portfolio, it’s not too hard to guess. THE FEES! The most important aspect of this approach in my opinion is the focus on low cost investments. Let’s talk about two of the most common fee structures:

Percentage of assets managed

This is the most common way fees are structured in the financial industry. It’s usually a tiered approach:

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In addition to the fees described above, there will be fees associated with the type of investment you have. Such as: actively managed funds (highest fees), index funds and ETF’s.

Fixed Fees

Similar tier structure as listed above, but a fixed fee for a range of assets in your portfolio.

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Case Study – Meet My Friend Bob (Fake Name 😊)

Bob work a typical 9-5 job as a lab technician at a leading healthcare company. He makes $55,000 a year. To make this simple, let’s ignore any potential company match programs that Bob may take part in. He invests $12,000 per year for his 35-year career. Let’s look at how fees drastically impact the value of your portfolio over time:

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As illustrated, the impact of fees can be HUGE. Over a lifetime of work, a millennial can forget three quarters of a million dollars by not paying attention to fees. I don’t know about you, but I’d rather spend time understanding even just the basics of investing and lowering my fees than lose $750,000 over my lifetime.

Fees Are Manageable

The good news? With companies like Vanguard, Wealthfront, Betterment, Acorns, etc – there are plenty of options to keep your fees between 0 – 0.5% over the life of your investments. You aren’t going to eliminate all fees, but you can make sure they’re as low aw possible. But there are economical ways as well.

I currently invest through the following companies with associating fees:

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Your Investment Portfolio – Now What?

I hope through this simple explanation, you now understand the impact fees can have on your portfolio over time. Check out my book review of the Coffeehouse Investor and How to Build Wealth, Ignore Wall Street, and Get On with Your Life if you want to learn more about how to invest in low cost index funds.

If you want to learn more about going from a negative net worth to being a millionaire, check out my Book Review: Set For Life by Scott Trench.

Fees Are Killing Your Investment Portfolio - PINTEREST PIC

Do you know the fees you’re paying? What’s the impact of fees to your portfolio?

Call To Action: find out what fees you’re paying and the impact they have on your portfolio.

-My Strategic Dollar

Comments 13

  1. We recently rolled over Mr. Adventure Rich’s 403b to a Vanguard IRA largely due to the higher expense ratio at the former custodian. It is amazing how big of a hit expenses can take on your investments!!!

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      Heck yes! It’s crazy how low Vanguard’s fees are compared to other investment companies. I LOVE the fees AND their customer service. Overall a wonderful company.

  2. I just checked and my new 401(k) I just got access to through my consulting gig is 1.1% 🙁 Not too pleased about that at all…

    Fees are definitely a big thing that are overlooked by people. If you have old retirement plans from previous jobs, you can roll those into IRA’s and a lot of times it’ll have a much smaller fee. Throwing it into something like index funds is a tiny overhead cost compared to the managed funds – which lots of 401k plans have (mine have never offered index fund investing options unfortunately).

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      Oh wow, 1.1%?! Dang. Does your company not take care of some of those fees or are they coming directly to you?

      1. Nah those fees are directly to me. My work situation is a bit strange compared to what I’ve had in the past.

        I’m a consultant/contractor, but I’m a W-2 employee of the firm that placed me at one of their clients. I have benefits just like a regular full-time employee, but get paid hourly; a rate lower than what my employer receives from their client (whose office I work at every day).

        They do subsidize my health insurance which is nice, but I’m getting screwed on 401(k). No match (though allegedly a potential $2500 bonus annually into it), high fees, and kinda meh investment options. It has me debating what I really want to do with it, but at the same time tax-deferred growth seems like a good idea…so while it sucks, does it suck MORE than doing something else with it? I’m not sure…

  3. Five years ago I couldn’t tell you what my fees were. Today, I can happily tell you we are under .5%. Would be even lower if we had better investment options through our current employer’s 401k plan. Thankfully, Vanguard kicks butt on fees and we have most of our investments with them. Do you use Personal Capital, Lance? They have a nice fee analyzer tool.

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  4. I have a somewhat unique situation. Because I am a government employee technically they actually take out from our match the fees for managing our retirement accounts.

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