Saved my parents $6000 in investment fees!

[Abe]

Hey all, just wanted to put in a reminder as we are discussing 401k funds - be careful to check the associated fees and try to rebalance into index funds if available. I was looking through my parents' retirement accounts and realized that the company's automatic target date fund was essentially a secret ploy to suck money out of their heard-earned savings! They had a lot invested in active funds with no better performance than the equivalent index funds that were available for about 1/5 the cost. This added up to almost $6000 a year in lost money from fees! Scoundrels!

[johnny847]

Nice!

Also, you probably saved them far more than $6000 - because the expense ratio is taken as a percentage every year, the fee over the rest of their investing lifetime should be enormous. For the same reason that compounding returns leads to exponential growth, the fees that mutual funds charge are compounding fees and grow exponentially over time (it just so happens that if you have a low expense ratio fund, this exponential growth takes a very long time to kick in).

[Abe]

That's a good point! Over their investments, it probably will come out to over $100k! One thing I didn't point out earlier is that the expensive funds' fees are about 0.8%. The index fund rates are closer to 0.2% Both sound like insignificant amounts, but a small percentage of a big number is a moderate-sized number! Once they finally retire, I'm going to roll all this over into IRAs with Vanguard and save another 3/4 of their current fees.