Fees you pay on investment funds can dramatically impact returns. Imagine a mutual fund with an expense ratio of 2%:
For every $10,000 you have invested, the fund would charge you $200/year.
If the fund had an annual return of 10%, your actual return would be 8%.
There are two ways to increase returns on funds:
- Find a better performing fund: Go from a 10% return to a 12% for example.
- Pay less for performance: Instead of paying a 2% fee, find a fund with similar performance. In this example, if you found a fund with similar performance and an expense ratio of 1%, you’d save $200 a year (and that money could be reinvested and compounded).
Here’s what happens in practice: Assume $10,000 invested and two funds with the same performance of 10% returns per year. The first fund charges 2% and the second charges 1%.
After 20 years the first fund would have a balance of approximately $46,600. The second fund? Just over $56,000! An increase of nearly $10,000 simply by ensuring you are not paying too much in fees.
InvestorKeep monitors your portfolio and alerts you when you may be overpaying. Acted on correctly, these alerts can lead to increases of tens of thousands of dollars over time.