It’s no secret that costs have a major impact on our returns and how much money our investments are able to generate.
Reducing high fees are one of the reasons why index investing has traditionally beaten active management over the long haul. And investors these days have finally gotten the message. Passive investments continue to take in the lion’s share of new money as portfolios seek to lower their fees and keep more of the money.
But there is another fee war going on. One that also has a major effect on your bottom line. And, here too, investors are reaping the benefits from their 401(k)s.
Here is a simple guide to understanding 401(k) plans.
401(k) Fees Matter Too
Most investors understand that buying a mutual fund or an ETF will cost them something. And it’s easy to see those costs. Go to any webpage or prospectus for a fund – such as the Vanguard S&P 500 ETF (VOO) – and you can easily find how much it would cost you to own an investment for a full year. In VOO’s case it’s 0.04%, or about $4 per $10,000 invested.