One of the biggest drivers of investment performance over the long term are costs.  Markets go up and down, but costs remain mostly fixed for the life of your investment.

While you can’t control the ups and downs of the market, you can absolutely control the cost of your investment.  Reducing investment costs is one of the easiest and most efficient means of helping you achieve your retirement goals.

What Do You Mean by “Costs?”

When you invest in a mutual fund, you have to pay the people who are managing the fund for you…after all, nobody works for free!  This is known as the fund’s management fee.  You don’t write a check for this fee.  You don’t even see a bill for it.  The fund’s managers simply deduct those fees from your investment on a schedule (usually quarterly).

In their efforts to promote transparency and full disclosure, the Securities and Exchange Commission requires all fund managers to publish their fees in their fund’s prospectus.  Take, for example, one of Fidelity Investment’s most popular funds – it’s “Contrafund.”  I chose this fund because it is often featured prominently in most of the retirement plans I come across for University of Michigan employees.

Fidelity Contrafund Fee Table

The fee table for Fidelity’s ContraFund.

The fee table to the left outlines the charges that Fidelity deducts from each client’s account.  Again, no bill is ever sent to you; this disclosure in the fund’s prospectus is all most investors see of the fee (assuming you even look at a fund’s prospectus).

The math is simple:  Every quarter of every year, Fidelity deducts 0.68% from your investment.  If you’ve invested $10,000 in the Contrafund, Fidelity takes out $680 every year.


Costs Add Up

Fidelity Contrafund Fee Graph

$91,650 in fees over 30 years.

You might not think that’s very much, but fees like this add up.  If you start out with a $50,000 in this fund, and never add another dollar to it, these fees would add up to $91,650 over a 30 year time period.  That’s almost twice your initial investment.

Think about that for a moment:  Is $91,650 a lot of money to you?  When you’re 65 years old and you’re looking at your bucket list, hoping to check things off, do you think that $91,650 might be useful in helping you do the things you always dreamed of doing?

In 2016, Fidelity Investments brought in $15.9 billion in revenue, the vast majority of which came from management fees just like this.  It’s a great source of revenue for Fidelity, since it’s taken out every year, regardless of how your portfolio does.


Want to Reduce Your Fee by 94%?

Contrafund vs VITSX Fees

How to save $85,474.

The simple move of using low-cost, passive index funds in your investment portfolio can work wonders for your retirement plan regardless of what the market does.

What does a 94% reduction in expenses look like in your retirement account?  Using our same 30 year period from our example above, it looks a lot like $85,474.

Remember those things on your bucket list that you wanted to do?  The trip to Yellowstone?  Seeing the Olympics opening ceremony in 2048 in person?  You’re now $85,474 closer to that.

Think about that number.  For a lot of people, $85,000 is more than an entire year’s salary.  To get it, you don’t have to work a year; you don’t have to eat Ramen noodles and go without cable.  You simply have to make some smart changes to your portfolio.


We Can Help.

At Tree Town Investments, we specialize in helping people like you make sure that they have the most efficient, lowest-cost investment portfolio possible.  Because we are an independent adviser, we recommend only the investments that are best for you – not the investments we’re paid to sell by somebody else.

If you’re interested in learning more about cutting your investment fees and optimizing your portfolio for the long run, give us a call.