If you are looking to quickly build up a healthy nest egg during your working years, an employer-sponsored 401(k) with matching contributions is one of the best ways to achieve that goal. You may have also considered other options like traditional individual retirement accounts (IRAs), mutual funds, target-date funds, and many more. These are some of the most common ways Americans save for retirement, but if you are investing through a brokerage, they all have something else in common: fees. If you invest in any of these financial products through a brokerage, you should be aware that costly fees and other factors are eating away at your returns. Crash Proof Retirement® has the scoop on retirement account fees and what you can do to eliminate them.
Types of Fees Charged by Brokerages
Depending on which brokerage you are using, you could be paying numerous fees on your investments. Mutual funds, for example, can have high trading fees (up to $49 or more) that are assessed every time you buy or sell shares. In addition, you may be responsible for annual fund operating expenses like management fees, marketing fees (known as 12b-1 fees), custodial costs, legal costs, administrative costs, margin rates, and more. Alone, these fees may not seem like much, but when added together, they can amount to a large portion of your investment, known as the expense ratio.
The average expense ratio for an actively managed mutual fund is between 0.5% and 1.0% but can be as high as 2.0% or more. That means that if your investment has an annual return of 5.0%, you will only realize 3.0% to 4.5% of that gain. Those losses also compound over time; every dollar you pay in fees is a dollar that is not available to grow in your account. According to Vanguard, a 2% annual fee could erode up to nearly 40% from an account that makes 6% in interest each year over the course of 25 years.
Fees are not exclusive to mutual funds, either. Target-date funds are another popular option for passively managed investing, and they assess similar fees to mutual funds. Variable annuities are one of the worst culprits, with an average expense ratio of 2.25%. Even your 401(k) and IRA accounts (including Roth IRAs) can have built-in fees including annual fees, closure fees, account transfer fees, distribution fees, and more if you are investing through a brokerage. Any time you invest, it is important that you know about and understand every fee you are being charged.
Stock Market Risk and Other Factors
While you battle fees in your investment accounts, your securities-based investments will also be subject to stock market risk. A stock market crash could send your securities-based investments plummeting, just like they did for millions of Americans in 2008. While all that is happening, inflation will also be eating up another 1% to 3% of your accounts’ value annually. If you are not getting good returns, you could end up falling behind in your retirement investments with very little to show for your investment efforts. In the case of high-risk securities-based investments, you could even lose every cent of your investment! For investors who are currently retired or plan to retire soon, that is a risk they simply cannot afford to take.
Eliminating Fees and Risk from Your Retirement Accounts
While risk and fees dominate securities-based investments, you should know that there are other options that can protect your retirement. There are investments that exist outside of the securities industry and are free from fees and market risk, that outpace inflation, and grow steadily while offering competitive rates that are more secure than securities-based investments. These proprietary vehicles make up the Exclusive Crash Proof Retirement® System and have already been implemented by more than 5,000 consumers. By implementing a Crash Proof Retirement® Strategy, you can achieve peace of mind and realize your retirement dreams. If you would like to find out more, contact Crash Proof Retirement® today by calling 1-800-722-9728 or visit crashproofretirement.com.