The Erosive Effect of Fees

I often wonder if investors realize how important fees are to their long term investing results. My sense is that they really don't get it. If they did, they would embrace low cost, passive investing and avoid active management and high priced investment advisors.

The Department of Labor reports that for every 1% increase in fees, an investor's portfolio erodes by 28% over 35 years. So, if an investor would have had $1 million at the end of 35 years, instead she would have $650,000. This is an enormous difference.

Investors have no control over the performance of their market based investments. However, they do have the ability to work with advisors who charge low fees and invest in funds that have low internal costs. Intelligent investors realize that low cost, passive investing is the most reliable path to successful investing.