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Cut Your Investment Fees by 50%

Cut Your Investment Fees by 50%
Ron DeLegge, Editor
November 28, 2012

The holiday season brings out bargain shoppers everywhere. But unfortunately, so many people are busy digging for super deals at stores they miss one of the biggest opportunities to save money thats right underneath their noses: their investment portfolios.

What kind of investment account do you have? IRA? Roth IRA? 401(k)? Regardless, you have the unique opportunity to cut your investment fees by 50%.

Tracking Fees

Each quarter, ETFguide publishes a comprehensive report showing the median expense ratios for all ETF categories. (Report is available to subscribers of ETF Profit Strategy Newsletter at no additional cost.) For the latest quarter, expense ratios on broad stock market ETFs was just 0.28%, international stocks 0.65%, and bonds 0.30%. Other categories like commodities and currencies showed similar results.

The report illustrates consistently lower fees versus actively managed mutual funds in the same category and in some instances even lower fees compared to index mutual funds. (To find out what your mutual funds charge, go to their Website and look at the summary prospectus.) 

The table below illustrates how compounding fees over 20 years on a $100,000 portfolio can devour your money. Like a life threatening disease, the results for investors who ignore cost are fatal. 

Annual fees of 1.5% to 2% are common among mutual funds and thats what many fund investors pay. On the other hand, by cutting fees to under 0.5% investors can add thousands of dollars to their bottom line.

Many ETFs have annual expenses less than 0.50% - and in some cases - even three to four times less! For example, Charles Schwab offers low cost ETFs covering U.S. stocks (NYSEARCA:SCHB), emerging market stocks (NYSEARCA:SCHE), U.S. REITs (NYSEARCA:SCHH), and bonds (NYSEARCA:SCHZ) with average annual expenses between 0.04% to 0.15%.

Currently, major ETF providers are in the midst of an epic fee war and the only way to benefit, is by making these low cost funds a key component within your investment plan.  

Next Frontier: 401(k) Plans

One area where lower fees are needed is in the 401(k) retirement plan market. Unfortunately, the retirement plan industry is still dominated by self-serving companies trying to squeeze investors.

Several years ago, I started the ETF(k) Retirement Group at LinkedIn - which has now grown into a group of almost 600 financial professionals. The idea of ETFs inside 401(k)s has begun to resonate and forward thinking advisors are now making ETFs the investment of choice inside retirement plans.

If you have a 401(k) plan at work with poor investment choices or high fees, talk to boss about getting an ETF(k) plan. More than 50 million Americans with a 401(k) plan deserve better investment choices and lower fees. And ETFs are delivering.

Although the title of this article is cut your fees by 50% the reality is conscientious investors can reduce fees by even more.

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CommentsAdd Comment

grant8 said on November 29, 2012
  For a 50% sale at Wal-Mart people run over and kill each other.
SallyB said on November 29, 2012
  This is the first time I've seen a side by side comparison of mutual fund fees vs. ETFs and it's a real eye-opener! I still own a few mutual funds which charge higher costs but after doing the numbers and seeing their stinky performance I can't see not making the complete switch over to ETFs by early 2013.
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