![]() He who understands it, earns it … he who doesn’t … pays it.” “Compound interest is the eighth wonder of the world. How much can high fees hurt my retirement savings? This guide will help explain 401(k) fees that plan participants may be responsible for paying-and teach you how to identify and avoid costly charges. That’s why it’s essential to have a clear idea of how much you’re paying in 401(k) fees. Many Americans may have to put off retirement because of confusing, poorly disclosed fees. While this may not seem like much, investment expenses can eat away at your retirement savings and even force you to work longer. To set the stage, the average investment expense of plan assets is 1.64% (for plans with 25 participants and $250,000 in total assets)1. However, it is good to understand your 401(k) fees, as they could be affecting your retirement savings. And it’s estimated that millions of Americans have no idea whether they’re paying fees (or how much they’re paying) and find the task of figuring it out to be confusing and difficult. ![]() Nearly two-thirds of Americans say they don’t understand how a 401(k) plan works. If you don’t know off the top of your head, you’re not alone. We’ll review what these fees entail-and how to locate them-so you can understand what you’re paying for your 401(k)ĭo you know how much you’re paying in 401(k) fees as a plan participant? In other words, the front-end sales charge and expense ratio reduced your investment gains by $43,000.There are three basic categories of 401(k) fees: investment fees, plan administration fees, and individual service feesĤ01(k) fees can be listed on a plan administrator’s website, within marketing materials, in a fund’s prospectus, or elsewhere These may sound like small percentages, but these small fees result in a 30-year investment value of $109,200. ![]() However, to invest in this particular fund, you'll need to pay a 3% front-end sales charge, as well as a 1% expense ratio on an ongoing basis. That is, the fund's investments generate total returns of 9.5% per year on average. Now, let's say that you invest in a mutual fund that does just as well as the overall market. The S&P 500 has historically averaged returns of about 9.5% per year, and $10,000 compounded at this rate for 30 years is $152,200. You might be surprised at how much these expenses can really costĪs an example, let's say that you have $10,000 to invest. As a long-term investor, it's a good idea to base your decisions off of the gross expense ratio – in other words, don't assume that the lower net expense ratio will last forever. Simply put, the net expense ratio is what the fund's investors are paying now, while the gross expense ratio is what the fund's expenses could be in the future. A fund's gross expense ratio refers to the total annual operating expenses, while the net expense ratio may be reflective of a temporary discount, and may therefore be lower. You may see two expense ratios listed – gross and net. For example, a 1% expense ratio means that for every $1,000 you have invested, you'll pay $10 in expenses per year. This covers management fees as well as other expenses of running the mutual fund. ![]() Unlike the sales charges, this cost applies to all mutual funds. Like front-end sales charges, these are commissions paid to third parties, and are not a part of the fund's operating expenses.Īn expense ratio is the fund's annual operating expenses, expressed as a percentage of assets. This expense can be a flat fee, or can gradually decrease over time to incentivize investors to hold their investments. If you limit your search to "no load" funds, you can avoid this expense altogether.Ī back-end sales charge, or back-end load, refers to money you pay when you sell, or redeem, your shares of a mutual fund. This is a form of commission paid to financial planners, brokers, or investment advisors. A front-end sales charge, also called a sales load, refers to money you pay upfront when you invest in a mutual fund.
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