Why Expense Fees Matter
Posted on December 3, 2007 in the Investing category
.When looking at their own portfolio’s performance, many investors fail to take into account the impact that management fees are having on their performance.
According to Morningstar the average stock fund that invests only in U.S. stocks has a 1.4% management fee. For illustrative purposes I will use the Vanguard Total Stock Market Fund which has management fee of only 0.19%.
Consider that you invested $10,000 in the Vanguard Total Stock Market Fund (VTSMX) and a fund with an average management fee.
If both funds earned an average rate of return of 8% before expenses for the next 25 years then you would have:
- $95,500 in the Vanguard Total Stock Market fund.
- $68,000 in your own portfolio.
In other words, you would have surrendered nearly 30% of your gains, or $27,000, to your mutual fund company. What would you do with an extra $27,000?
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