How to Protect Your Retirement

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The original version of this article was published November 22, 2004 under the title “Retirement Wisdom Part 5 – Value Objective Advice.” Time-sensitive numbers are relative to the original post date.

Would you complain if your $100,000 investment grew to $5.2 million dollars over 50 years? Probably not, but how would you feel if you found out it would have grown to $16.7 million had you not lost $11.5 million to unnecessary fees, expenses and commissions?

Analyze your investments at the Morningstar website: Enter the five-character ticker for one of your funds; for example, the Vanguard 500 Index Fund has the VFINX. Then click on the “Fees & Expenses” tab. For the Vanguard S&P 500, the current total expense ratio is 0.18% and the expense ratio for the category average is 1.27%.

Objective wisdom would suggest that the average mutual fund isn’t going to perform 1.09% higher to compensate for its higher expense ratio. Over 50 years, a $100,000 investment in Vanguard’s S&P 500 fund will have saved $7.1 million in less fees and forgone earnings over the category average. Vanguard investors will have $16.8 millions dollars verses the average fund’s $9.7 million dollars – an advantage of $7.1 million dollars.

These calculations are courtesy of the Security and Exchange Commission’s Mutual Fund Cost Calculator where investors can compute the amount of investment growth lost by investing in funds that have high expenses or sales fees. The SEC site asks for the same fees and expenses information that can be found at This makes it very easy to view expenses at Morningstar and compute lost investment growth at the SEC site.

Unlike loaded funds, Vanguard does not have any sales fees. Conversely, loaded funds compensate their salespeople either with an initial front-end commission (called A shares), by a deferred commission if the fund is not held several years (called B shares), or by a continuously higher fee (called C shares). The typical 5.75% initial sales fee for A shares will reduce your 50 year investment by an additional half million dollars. B and C shares are almost always associated with higher than average expenses.

Vanguard also does not have a 12b-1 fee, named for the Securities and Exchange Commission (SEC) rule that originated it. A 12b-1 fee permits a fund to pay some or all of the costs of distributing its shares to the public. While you own their mutual fund, they are deducting the cost of advertising from the fund’s investments. The more they spend on advertising the lower your investment’s return. A “No-load” fund must have a 12b-1 fee of 0.25% or less. But even a 0.25% fee will reduce your 50-year investment by and additional $1.1 million dollars.

If Vanguard’s 0.18% fee is low and the category average is 1.27% you can bet that some funds are as far above the average as Vanguard is below the average. A fund with an expense ratio as high as 2.36% will cost $11.2 million dollars more over 50 years than the Vanguard fund. Instead of a $16.8 million dollar portfolio with a low fee structure, your investment will only grow to $5.6 million dollars because of the higher fund fees. Add a sales load on the front and you will be left with $5.1 million dollars. The $11.7 million that was lost to fees and forgone earnings are hidden expenses that are usually not perceptible as they are happening, but extrapolated over time they are huge.

To meet your financial goals, you have three options. Use the services of a mutual fund salesman understanding that they often earn their living from commissions tied to fee laden securities. Bank on the free advice of family and friends, being careful that you may get what you paid for it. Or have your assets managed for you by a fee-only financial advisor using no-load, low expense ratio investment choices.

For many investors, a fee-only advisor pays for themselves in reduced expenses alone, and then there is the added benefit of having your own personal financial advisor. You can find a list of fee-only advisors in your area through The National Association of Personal Financial Advisors at

Photo by Alex Iby on Unsplash.

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President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.