Investing Fees: A $400,000 Dilemma That Can Rob Your Nest Egg Blind

Photo by wavebreakmedia / Shutterstock.com

Investment fees can amount to enough money over a working lifetime to jeopardize your ability to retire comfortably.

We talk about this often at Money Talks News — see “Of All the Fees You Pay, This One Is the Worst by Far” for starters. But a recent study by Personal Capital underscores the danger.

The study’s main takeaway? The total amount of money that investors lose to fees can amount to $400,000 over a lifetime. As the study reads:

“Over the course of a full lifetime, hidden fees can add up to hundreds of thousands of dollars … This study clearly illustrates a wide range of fees charged to clients, and that identifying fees is notoriously difficult. Consumers need to be diligent about what they are being charged …”

For the study, Personal Capital examined the long-term cost of certain investment fees charged by 10 national investment advisory firms in Personal Capital’s database. These firms range from Wall Street powerhouses such as UBS and Merrill Lynch to low-cost leaders like Vanguard and Charles Schwab, with Personal Capital itself also included.

Personal Capital is an online investment advisory firm, but it also offers free wealth-tracking tools. These are like an investor-friendly equivalent of a budgeting software program.

For the study, Personal Capital focused on two types of investment expenses:

  • Advisory fees, also known as management fees: This cost is usually a percentage of the total amount of your money being managed by a financial adviser — that is, a human financial adviser. (Personal Capital did not look at robo-adviser fees.) The study notes that advisory fees can vary widely. Among the 10 firms in the study, advisory fees varied from as much as 3 percent at Ameriprise to 0.28 percent at Charles Schwab.
  • Expense ratios, also known as fund-related fees: This cost is associated specifically with mutual funds. We detail it in “Money Lingo You Need to Know for Financial Survival.” The average expense ratio varied from 0.5 percent at Ameriprise to 0.08 percent at both Personal Capital and Vanguard. To learn more about Vanguard’s longtime cost-cutting quest, check out “The Key Lesson Vanguard Can Teach You About Getting Rich.”

The study found that investment fees can cost you more than $400,000 over a lifetime. That figure stemmed from a hypothetical investor’s situation that involved the investor:

  • Starting to contribute $18,000 to a 401(k) at age 21 and increasing this contribution by 2 percent every year thereafter.
  • Increasing yearly contributions by the Internal Revenue Service’s “catch-up” amount at age 50. That amount is $6,000 for tax years 2017 and 2018.
  • Stopping contributions at age 65.
  • Earning annual returns of 6 percent.
  • Paying fees as a percent of assets, with fees remaining level.

As the report explains this hypothetical situation:

“While the difference between a 1.0% annual fee and a 3.0% annual fee may sound trivial, the impact over time can be staggering. For example, the total additional amount lost to fees in this example is more than $400,000 …. Even a one percent difference (i.e., 2.0% vs. 1.0%) costs the investor an extra $240,000 in fees over the full time horizon.”

To learn more about how much of your retirement savings you might be losing to investment fees, check out:

To learn more about investing and growing your wealth, check out Money Talks News’ “Grow” page.

What’s your take on this news? Sound off in a comment below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

9 Ways to Get Affordable Vet Care

Medical care for your furry friends can be expensive. Here are some tips to get affordable vet care.

10 Items Every First-Aid Kit Should Have

Take control of your health and safety by customizing your own first-aid kit with these Amazon purchases.

8 Amazon Picks Under $30 for Coffee Lovers

We’ve brewed up a list of amazing Amazon products that are sure to perk you up.

Don’t Pay for These 10 Things: They Are Free With a Library Card

Before you spend another dollar on items and services like these, check with your public library.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

This Simple Mistake Might Weaken Your COVID-19 Vaccination

Avoid doing this before you get vaccinated.

7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

10 Cars You Are Most Likely to Keep for 15 Years

The cars that owners hold onto the longest have one thing in common, a new study shows.

3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

10 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

9 Things You Should Never Leave in a Car

Thinking of leaving these possessions in a car? Prepare for unexpected consequences.

13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

9 Mistakes People Make When Cleaning With Vinegar

Cleaning with vinegar can save you a lot of money, but using it like this can cost you.

8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

10 Things Successful Retirees Do Differently

These habits and characteristics can help put you on the track to success.

7 Costly Health Problems That Strike After Age 50

As we age, our bodies wear down. Here is how to cut costs associated with some common ailments.

29 Purchases That Can Save You Money Every Day

Sometimes, you’ve got to spend to save.

5 Changes to Your Federal Tax Return Form in 2021

The new Form 1040 features two new tax breaks, among other changes.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.