Study: Expenses Can Eat Up All Your Investment Returns

Tuesday, 24 Jun 2014 12:48 PM

By Dan Weil

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Whenever you consider making an investment in a financial asset, you should take into account what the expenses will be.

That fact was put into clear relief by a recent study from law professors Ian Ayres of Yale University and Quinn Curtis of the University of Virginia.

They looked at more than 3,000 401(k) plans and found that on average participants paid almost a percentage point more in annual fees than investors in low-cost index funds available to the general public, The Wall Street Journal reports.

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In some plans, expenses were high enough to wipe out the tax advantage you gain by investing in 401(k)s.

"Whether you're investing in a 401(k), individual retirement account or, for that matter, a taxable account, the fact is that high fees can seriously stunt the growth of your retirement assets," The Journal explains.

One legendary investment figure who frequently rails against high fees is John Bogle, founder of The Vanguard Group.

"Don't let the miracle of long-term compounding of returns be overwhelmed by the tyranny of long-term compounding of costs," he said, according to Forbes.

Bogle wrote recently in the Financial Analysts Journal that an index fund would return 6.6 percent a year to its investors on average over a 40-year period, compared with 3.9 percent for an actively managed fund.

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