Fortunately

Mutual funds and ETFs charge a fee called an “expense ratio.” (Notice how it’s not called a fee? That’s clever marketing.) The expense ratio is billed as a (really tiny) percentage of the assets in the fund. A typical expense ratio for a mutual fund might be something like 0.5%. By design, 0.5% sounds really low – but, even a small percentage can still be a large cost to you.

For example, if you’ve saved $50,000 for retirement in a mutual fund that has a 0.5% expense ratio then you’re paying $250 in annual fees.

That fee is taken right off the top. No matter whether the value of the mutual fund grows or shrinks, the fund collects its due. Furthermore, as your investment grows, so does the cost. If, after 10 years of dedicated saving, you’ve built your nest egg to $250,000, you’re now paying $1,250 per year. Over $100 per month.

And that’s not even the worst of it! In the same way investments grow over time, so does the cumulative impact of those fees.

For example, if you invest $1,000 per month and get a 7% average return, after 30 years that 0.5% “expense ratio” will cost you almost $100,000 in lost returns – a difference of almost 10%!

The good news is that funds are transparent about their expenses. You can usually Google “expense ratio” along with the fund’s ticker symbol to find what the fund charges. Multiply that number by the amount you have invested in the fund, and that’s what you’re paying each year.

If the expense ratio is high (over 0.1% or so) – it may make sense to look for a lower cost option.

Stocks give you partial ownership of a company and bonds are a loan from you to be repaid.

If you are more risk-loving or have a longer time horizon, you should be more heavily invested in stocks. As you near your goals, the money you need should be more heavily invested in bonds.

Get your goal-based financial plan in less than 5 minutes at livefortunately.com

Finding the perfect asset allocation mix can be tricky. While we can all agree diversification, aka the “only free lunch in finance,” should be your guiding principle in optimizing your portfolio – then what? How do you find the ideal mix of ETFs without blindly following generalized advice, spending tons of time developing your own personalized strategy, or winging it?

*the three fund portfolio enters the chat*

Learn more about building a three fund portfolio → https://buff.ly/3R12bRE

Great insights from Jeff Rose and mention of us in this article 🥳

"While financial planning may feel complicated and overwhelming at first, what’s most important is taking the first step."

Full article here: https://buff.ly/3QwvGLr

Better understand the tradeoffs of your financial decisions with an interactive and actionable financial plan. Visit livefortunately.com for your free plan.