How to find out if you're paying excessive fees on your retirement savings
"The system is riddled with loopholes - what I would call 'landmines' - that can blow up your financial future," writes Tony Robbins, author of the bestseller "MONEY: Master The Game."
One such landmine is hidden fees.
They're unavoidable: Online investment platforms known as "robo advisers," ETFs, and mutual funds are all laden with fees. And if you're enrolled in a 401(k) plan, chances are you're heavily invested in mutual funds.
Many investors believe they're only paying the expense ratio (used to pay marketing costs, distribution costs and management fees) when owning a mutual fund, but there are several other costs involved: transaction costs, tax costs, cash drag, soft dollar cost, and advisory fees.
"The focus is on the 'expense ratio' because of its accessibility," explains Jonathan DeYoe, investment adviser and president of DeYoe Wealth Management. "Anyone can look on Yahoo and get that number."
You can also use Morningstar to find a fund's expenses ratio by searching the fund in the "quote" field:
The other fees are not so accessible.
"It takes effort to find trading costs and tax costs," explains DeYoe. "There is no doubt these are real costs - often more substantial than the expense ratios that are more easy to discover - but fund companies certainly don't make it easy to discover, and one really has to subscribe to third party research to find these costs."
Just because it's easier to track down the expense ratio doesn't mean it's the only fee that matters - all fees that drag on your total return are important, DeYoe emphasizes: "It isn't so much the name of the fee that makes it important as it is the size of the fee. This is different from saying they are not worth it - this is only to say that every cost you incur reduces your overall return, so you probably ought to have a good reason to incur it, especially if there are alternatives that can reduce those expenses."
While you can find low-cost index funds to invest in - which is what Warren Buffett, Charlie Munger, and other investing pros recommend - the average cost of owning a mutual fund is about 3.17%-4.17%.
That number may sound insignificant, but as your savings grow exponentially and the percentage of your assets you pay in fees stays steady, a significant amount of money can be diverted from your savings to pay for their upkeep. Ultimately, it could cost you upwards of $100,000 over a lifetime to maintain your retirement savings.
The good news is that you don't have to put up with exponentially high fees if you take the time to put in quality research.
Robbins recommends starting with Stronghold's free portfolio checkup, which allows you to link your investment accounts and see exactly how much you're paying in fees, and how much you could save with a different portfolio.
The fee analysis includes all fund fees, except management fees you would be paying to an adviser. Here's an example of what you would see:
StrongholdStronghold will tell you exactly how much you'll be paying in fees over time, and how much you can save. You can also compare your portfolio to a "target portfolio."
If fees are eating away at your investments, it may be time to consider a different investing vehicle, such as low-cost index funds. You can also hire tax-sensitive management, or advisers that focus on tax-sensitive portfolio construction.
As Vanguard founder John C. Bogle says, cost is everything: "If investors could rely on only a single factor to select future superior performers and to avoid future inferior performers, it would be fund costs. The record could hardly be clearer: The more the managers and brokers take, the less the investors make."