Is Your Retirement Fund Losing Money?


Filed under: Retirement


They're enjoying the free time retirement bringsOne of the best ways to prepare for your future is to make regular, tax-advantaged contributions to a 401(k) fund. But if you make the wrong choices, it’s also easy for the account to lose money. You may already know that taking early withdrawals results in big fees. But there’s another big mistake you might be making with your 401(k) fund, and you may not even be aware that you’re doing it!

We call this mistake “fund fee loss”, and it’s much more widespread than you might think. A recent study by Yale and University of Virginia professors demonstrated that investors are losing a significant amount of money due to lack of knowledge about fund fees. While your 401(k) may indeed offer diverse options and plentiful opportunities for growth, some of those same options can also cost you large sums of money.

Overall, fund fee loss is causing a 10.2 percent loss in optimal returns. In layman’s terms, this means if you’re aiming for a retirement goal of 1 million dollars, fund fee loss could cause you to fall short at only $898,000. This is because you may be paying higher fees than you should be.

According to the authors of the study, you should be on guard for the following fees:

  • High expense ratios – the financial professionals managing your money charge a certain percentage each year. These expense ratios should fall below 0.5 percent.
  • Front-end loads – you must pay this fee before you can invest with a fund . Unless you’re absolutely sure you need to select a particular option, never pay this fee.
  • Back-end loads – this fee is charged when you withdraw from a particular fund. Avoid funds with high back-end loads, unless you’re certain you want to invest in them for a very long time. Otherwise you will pay this fee each time you pull out of a fund and switch to another one.

Your investment strategy is unique, and no strategy works perfectly for everyone all of the time. But you should watch out for fund fee loss, and weigh the cost of fund fees carefully against the amount of money you can reasonably expect to gain from selecting those options in your 401(k) fund. Talk to your financial advisor for more information about fund fees.

14316 – 2015/4/6


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This information has been provided by a licensed insurance professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting the insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax, trust and estate, or investment advice. Infinite Wealth Advisors is not an investment advisory firm.  Investment Advisory Services provided by NAMCOA® – Naples Asset Management Company®, LLC, a federally registered investment advisor, website: www.NAMCOA.com .