Economize to Capitalize

Hey there Money Saver! Welcome back to another week of How to Save A Buck, where we explore ways of saving money in personal finance, credit cards, and investing! Check out my archive here! 

Your retirement account is booming right now.

US stock markets are at all-time highs and your balance is looking pretty.

But how much are your paying?

There are more than a few options in the US, and these custodians offer all kinds of investment options - all at different costs to you.

Who is the cheapest? Who charges the most? And why should you care?

We’ll dive into 3 popular firms, what they offer, why they’re among the best, and how they compare. After all, the more investments fees you pay, the less your retirement balance will be - and no one wants that situation.

A recent study released by the FINRA Investor Education Foundation found that 21% of investors do not think they pay any kind of fee for investing, and 17% say they don’t know how much they pay in fees. Among mutual fund owners, nearly 38% believe they do not pay any mutual fund fees or expenses.

HINT: you pay to invest. Everyone does.

So it’s wise to do your homework and consider your options.

In fact, over 20 years, a mere 0.25% difference in a fund can reduce the overall portfolio value by $10,000!

Ouch.

So how can we reduce what we pay?

Let’s look at 3 popular investment firms in the US: Fidelity, Schwab and Vanguard and examine their most comparable investment option - a total stock market fund. This way we can compare apples-to-apples.

Schwab, Vanguard, and Fidelity: A Comparison

The (Big) Fee Difference

These index-based options are the lowest of the low. In fact, the industry-average for expense ratios in 2022 was 0.47%. That’s at least 15x more expensive than the Vanguard and Schwab options above!

When observing these ultra-cheap options, you can see that even a $1.50 difference doesn’t seem like much, but over 20 years, on a $100,000 portfolio, that difference can mean $300 more money in your nest egg.

All 3 hold thousands of US stocks, resulting in broad diversification. This shows that even similar investment options can have drastic outcomes when it comes to cost.

The Cheapest Isn’t Always the Best

Don’t get me wrong - we love low-cost investment options, but it’s worth doing your research to determine the fund’s strategy and if it aligns with your personal investment goals. A few things to consider:

• Quality Matters: Sometimes, paying slightly more for better service or investment options is worthwhile.

• Consider Your Needs: Assess your investment goals, risk tolerance, and desired level of involvement.

• Holistic Approach: Some firms offer comprehensive services that may be ideal for those seeking both self-directed and advisor-assisted options.

• Educate Yourself: Understand the pros and cons of each custodian and choose wisely.

Log into your investment account. Look at the expense ratios associated with your current investments and compute your annual cost. Some firms post your average on the home page. My blended expense ratio is 0.05% (below).

You can even check out this fun expense ratio calculator from Moneystocker. Decide if what you pay is worth it to you, and if not, maybe look at similar options that cost less, but still achieve your same goals.

Remember, no matter who you select - Vanguard, Schwab or Fidelity - will offer some of the lowest-cost investments. What you need to decide is how much you plan to pay for your investments for the next 20, 30 or 40 years.

And who wants to pay more than they need?

Save On,

Chris