Paying More in Fees Can Get You Less in Returns

S&P 500 with trend lines from 1950 to 2008
Image via Wikipedia

Expenses in mutual funds and insurance products can prove very costly to your long term financial goals. Remember the larger the organization the larger the paypoints involved. There is a cast for marketing, executives, managers….

The expense ratios of S&P 500 index funds range from very low to extremely high. For an egregious example of an indefensibly high expense ratio, consider the State Farm S&P 500 Index B (SNPBX). It has an expense ratio of 1.49%, and a deferred load of 5.00%. This fund has assets of $547 million.A small difference in expense ratios can have a dramatic effect on returns. Let’s assume an S&P 500 index fund and Vanguard’s both return 8% annually, before costs and you invest $10,000. A savings of only 1% annually on expenses would mean the lower cost fund would yield an additional $63,000 over forty years ($201,000 versus $138,000). That’s a big difference.

Enhanced by Zemanta

Leave a Reply

Your email address will not be published. Required fields are marked *