Drip, drip: How small differences in mutual fund fees can drain your long-term ...
18.05.12
BOSTON — Price-conscious or not, consumers invariably slip from time to time. What's the big deal if you buy something you want for $1.50 at a convenience store rather than spend $1 at a discounter?
It can seem that way with mutual fund expenses, although investments clearly aren't impulse buys. Many investors give little thought to the impact of choosing a fund that charges 1.5 percent over another charging a 1 percent expense ratio. Given that the stock market frequently moves a few percentage points in a single day, do those seemingly minor pricing differences really amount to much over the long run?
They sure can — to the tune of tens of thousands of dollars, over decades.
Take for example, the growth of a $10,000 investment in a stock fund over 30 years, if the market gains an average 10 percent a year. Although that rate may seem unlikely given recent experience, it's close to the market's historical average going back several decades.
An investor paying 1.5 percent of assets in annual expenses ends up with nearly $116,000. That doesn't factor in inflation, and the potential drain of commissions known as loads, and taxes. The same investment in a fund charging 1 percent grows to nearly $133,000.
Source: The Republic