In the world of investing, one of the most important principles to remember is the golden rule: lower fees lead to higher wealth accumulation. While this may seem like common sense, many investors overlook the impact that fees can have on their overall returns.
When you invest in a mutual fund, ETF, or other investment vehicle, you are typically charged a fee for the management and administration of the fund. These fees can vary widely, but even seemingly small differences can have a significant impact on your long term wealth accumulation.
For example, let's say you have $100,000 invested in a mutual fund with an annual fee of 1%. Over a 30 year period, assuming an average annual return of 7%, you would end up with approximately $574,350. However, if you were able to find a similar fund with a lower fee of 0.5%, your ending balance would be closer to $647,010 – a difference of over $72,000.
So, how can you lower fees and increase your wealth accumulation? One option is to invest in index funds or ETFs, which typically have lower fees compared to actively managed funds. These passively managed funds aim to replicate the performance of a specific market index, such as the S&P 500, at a fraction of the cost.
Another strategy is to shop around and compare fees before making an investment. Different investment firms and platforms may offer similar products with varying fee structures, so it pays to do your research and choose the option that will minimize fees and maximize your returns.
Additionally, consider working with a fee only financial advisor who is transparent about their fees and can help you create a personalized investment strategy that aligns with your financial goals.
By following the golden rule of investing – lowering fees for higher wealth accumulation – you can set yourself up for long term financial success and reach your goals faster. Remember, every dollar saved in fees is a dollar that can be put to work in growing your wealth.