Part 2: Fees Can Add Up Over Time

Part 2: Fees Can Add Up Over Time

Investors will be saving and then drawing down those retirement savings over several decades. As a result, there is plenty of time for small differences in fees to add up to big costs.

Investors will be saving and then drawing down those retirement savings over several decades. As a result, there is plenty of time for small differences in fees to add up to big costs. And in many cases, the differences are far from small: According to Morningstar, the average expense ratios on a large-cap blend ETF and a TDF are 0.09% and 0.84%, respectively. Meanwhile, the median fee on a U.S. large-cap equity Collective Investment Trust fund is 0.80%. By comparison, liquid alternative mutual funds are much pricier: The average fee for a long-short equity mutual fund is 1.84%.

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Investment decisions should not be based only on fees. In many cases investments with higher fees can benefit a portfolio’s overall performance through diversification or active management strategies that may limit losses in a down market or exploit opportunities in an up market. But weighing whether high fees are justified is an important fiduciary responsibility.

Next Part 3 of 5: Looking Ahead

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