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Typical 401(k) is Overly Burdened By Fees
If you keep track of your 401(k), you have probably noticed that management fees have been falling for quite some time, which is great news to investors. However, in the last couple of years, you might also have noticed that the decrease has slowed considerably.
Of course, the advantage of lower fees is simple: lower fees mean you keep more of your returns on investment.
401(k) Expense Ratios Matter
For example, if you have two identical funds offering 4.7% returns.
The first has a 1.3% expense ratio compared to the second at 0.3%, the former will cost you 1% more of your annual returns.
If, however, you have one fund offering 6.2% returns with 1.4% fees and a second fund offering 5.4% returns with 0.2% fees, the latter fund would be better, profit-wise, as the net return would be 5.2% as opposed to 4.8%.
Thus, the fund with the lower gross returns would be the better fund due to lower fees.
That, in a nutshell, is the big reason an investor must always look at the return after expenses and fees, not at the headline number the fund usually promotes. The difference, compounded over even 10 years, could cost you thousands of dollars. Over 20, 30, or 40 years, the difference could be massive.
What does the future hold for stock and bond investments?
Financial experts predict that a substantial decline in returns will occur with stocks and bonds in the near and foreseeable future. Low interest and inflation are near their end, and as populations around the world (especially in China) age, the global GDP growth will also decline. Technological disruption in most of the major industries is also a harbinger of lower returns, which means one thing for the savvy investor: minimize the amount you’re spending on fees.
With most fund managers moving to a passive investment strategy, it makes even less sense to pay high fees because all they’re doing now is watching your money rather than actively looking to increase your returns.
That’s why, if your employer doesn’t offer a wide variety of 401(k) investing options, or if the expense ratios are simply too high, other options need to be sought. One of the best is to roll your assets over into a Gold IRA where fees are typically a small fraction compared to that of managed paper IRAs.
No matter what you choose to do, however, the solution to higher returns is clear: you must take a more active role in managing your retirement investments because nobody else is going to protect your wealth from excessive fees as well as you can. Gold allows you to do just that, with lower fees and historically higher returns than any other investment option.