Are Hidden Fees in Investing That Significant?
One of the things you will hear about in the investing sector are the fees that you will have to pay. A certain portion of your account balance is being allocated to the management of your investment. This is true whether you have a 401(k) or any other investment portfolio. If you want to learn how to invest properly, you need to be aware of the effect that hidden fees can have on your investment.
Understanding each and every fee that is taken out of your investment is crucial. You want to know exactly what each fee is going towards and what portion of your investment is allocated towards paying off that fee. Gaining access to this information requires you to read the fine print before signing a contract.
To provide some perspective on the significance of hidden fees, take a look at this report from the U.S. Securities and Exchange Commission titled “How Fees and Expenses Affect Your Investment Portfolio.” Three different investments of $100,000 with separate annual fees (0.25%, 0.50%, 1.00%) and an annual return of 4% are tracked over a time period of 20 years. You lose out on $10,000 with the 0.50% annual fee compared to the 0.25% annual fee, and you pay $30,000 with the 1.00% annual fee plan in comparison to the 0.25% annual fee.
Moreover, if you took the 4% annual return rate with a 1.00% fee and invest the $28,000 you paid in fees over 20 years, your total would have been $12,000 higher ($220,000 vs. $208,000).
It ONLY takes less than a percentage of a difference to see a big change in how your investment grows over several decades. Imagine what the numbers add up to when you have high hidden fees and millions of dollars under management!
You should know that you will not likely find a management contract that does not charge fees. Rather, your focus should be directed towards a clear understanding of the fees you are paying and the effect they will have on your investment. It is vitally important to review your statements and see that nothing was misappropriated. This is your money and you are 100% responsible for everything that happens to it.
Take the time to shop around and find the investing service that is right for you. You may have to pay fees but you want to avoid paying more than is necessary.
Have you ever had to pay hidden fees before? How did you negotiate a better deal for yourself? Let us know on social!
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