Building your nest egg and retirement portfolio can look different for various people. Whether it’s using traditional 401ks and an IRA, Roth options, 403(b) plans or other retirement brokerage accounts, to the different assets classes (stocks, mutual funds, ETFs, bonds, etc.) used within the accounts, planning for retirement is certainly dependent on a multitude of factors.
One of those factors is how much you are paying in fees. Like many things in this world, there are fees associated with investing and your finances. Fees can be hidden and difficult to keep track of, but they are extremely important to understand so you don’t lose too much value on your returns over time.
Types of Hidden Fees
Fees can range from institutional charges from your brokerage firm and financial advisor, to the fees paid on the types of investments you are holding. Fees can occur by simply opening accounts, service and maintenance, trading and advisory services, and potentially one time fees for new investment transactions.
Other sorts of fees to be aware of, and can be easily overlooked, include expense ratios (if you own ETFs and stocks in your portfolios) and mutual fund fees (12B-1, front-end, and back-end).
You may come across financial institutions and firms that have their fees within the fine print or in other locations that are less visible, so make sure to carefully read the materials and ask your financial advisor to give you a complete rundown of the fees you would pay to the firm, and the fees that are associated with your investments.
The Long Term Effects of Fees
As consumers, we often think that a small percentage fee is nothing large enough to consider, but when you factor in that your path to retirement is likely a multi-year endeavor, the fees add up, greatly reducing the maximum amount of your potential return on investments.
According to a resource from the SEC, an investor who initially invested $100,000 with a 4% annual return over 20 years may lose $30,000 on their investment if they were paying a 1% fee instead of 0.25% on their investments.
$30,000 is no small amount, and when you factor in that your investment portfolio may compound annually more than 4% and have a much greater value than $100,000, the effects of fees on your retirement may prove to be much larger.
Here to Help: The Fee Analyzer by Personal Capital
With the importance of recognizing the fees you pay, you can use Personal Capital’s Fee Analyzer tool (it’s free!) to help you gain transparency on how much you might be losing on your retirement. Here are some helpful steps and tips as you prepare to use the Financial Analyzer tool:
- Be sure to link your 401k and investment brokerage accounts to your Personal Capital Dashboard
- Proceed to the “investing” tab and choose the “Retirement Fee Analyzer”
- Adjust the annual contributions, employer match, and annual growth to meet your personal scenario
- Observe the various expense ratios and fees the Fee Analyzer pulls up based on its analysis of your investments linked with your Personal Capital Dashboard
- Research alternative ETFs or index funds to replace high-cost funds while still maintaining the proper diversification in your portfolio
Instead of essentially wasting your money by paying for fees on your investments, consider the data of Personal Capital’s Fee Analyzer and see how much less you could owe in fees, and how much more you could ultimately have for your retirement if you were invested in low cost index funds and ETFs.
Suggested Next Steps For You
- Sign up for Personal Capital’s FREE financial tools and access the Fee Analyzer to get a clear picture on the fees you are paying in your current portfolio.
- Consider talking to a fiduciary financial advisor about your retirement plans and financial goals.