Investing Tips for Millennials - Keep Investing Fees to a Minimum
Before you purchase any managed mutual fund, index fund or exchange-traded fund understand the fees that the fund charges. Some funds charge a one-time sales fee (called load) when you buy and sell the fund.
All funds charge an annual fee that is a percentage of the current dollar value of your holdings. Annual fees can be as low as 0.10 percent for passively-managed index funds or nearly two percent or more for some actively-managed funds.
Annual fees are particularly onerous because the dollar amount that you pay increases as the value of your holdings increases.
Assume that you invested $10,000 and hold it for 30 years at 6 percent return. With no fees, you would have $57,434.91. With a two percent annual fee, you would accumulate $31,329.84, a 45.45 percent reduction. So the two percent annual fee cut your total return almost in half! Even a one percent fee can significantly reduce your return.
Use the Investment Fee Calculator to see the effect of fees on total returns.
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