How Investment Fees Affect Long-Term Results

Small annual fees can create a large dollar gap

A recurring fee reduces the balance that remains invested and can therefore reduce future compound growth. The effect depends on the fee, account value, return and time horizon. Compare projected balances after fees, not only the quoted percentage.

For illustration, $10,000 growing for 30 years at 6% before fees becomes about $53,500 with a 0.25% annual fee and about $43,200 with a 1% annual fee, assuming each fee simply reduces the annual return and there are no deposits or taxes. The roughly $10,300 gap belongs to this scenario, not every investment.

Compare value as well as price

The Department of Labor notes that fees are one part of a retirement-plan decision. Services, risk, available investments and employer features matter too. A lower fee does not automatically make an investment suitable, and a higher fee does not establish better performance.

Use the plan's fee disclosures and each investment's prospectus or official disclosure. Check whether a percentage applies to assets, contributions, transactions or a flat account amount. Avoid adding a fee twice when a quoted return is already net of that cost.

• Fund expense ratios
• Advisory and platform charges
• Plan administration fees
• Transaction costs
• One-time charges