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Earn $42,000 on a $10,000 Investment by Reducing Your Fund Fees

In a typical year, the average American probably spends less than 30 minutes optimizing their retirement and investment accounts, if at all.

With less time than it takes to watch a sports game, I can almost guarantee (with disclosures) that I can save you $14,000 on a $10,000 investment, and increase your retirement account value by potentially $42,000 after 38 years.

How does this work?  Because of how little time we spend monitoring our retirement accounts and investment funds, traditional funds can get away with financial murder.

For example, the average mutual fund fee is 1.25% according to Morningstar.  Yet the average Vanguard ETF expense ratio is 0.12%.  This difference doesn’t seem like a lot, but compounded over time, it adds up to millions of cents.

By moving funds from the average managed mutual fund to a Vanguard ETF, not only are you likely to beat over 86% of active fund managers, but you will save a ton of money over time.

Look at what happens to a $10,000 investment from a 28 year old retiring at age 65.

Regular Joe invests in an average high cost mutual fund with a 1.25% expense ratio.  Mr. CentsAndSense.com invests in a low cost Vanguard ETF with a 0.12% expense ratio.screen-shot-2016-10-17-at-9-48-01-pm

Mr. CentsAndSense.com not only saves $14,331 in fees, but the ending value of his account is $42,765 higher than Regular Joe’s — even though they both earned an average stock market return of 7% per annum!

The high fees hurt not only because Regular Joe is paying more in fees, but also because of the opportunity cost of not compounding additional cash — which makes a huge difference at the end of the 38 year period in question.

Bottom Line: Unless you’re one of the few who can pick mutual fund managers who can outperform the market, net of fees, think about transferring your retirement funds into low-cost ETF funds.

Don’t believe me?  Check out this clip from John Oliver!

Do you know what fees you’re being charged in your retirement and investment accounts?

If you just joined our blog, check out this post to hear why you’re already late in saving for retirement, and click here to learn more about different retirement account options.

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