The insidiousness of fees, taxes, and other expenses

Compare the impact of fees and taxes compounding against you:

• Sally invests $10,000 in low fee, tax sensitive index funds and gets a 10% return over 30 years—with fees and taxes taking 1%/year. 

• Bob invests the same $10,000 and uses stocks and actively managed mutual funds to get the same 10% over 30 years—with fees and taxes taking 2%/year.

• At the end of 30 years Sally has a $132,677 and Bob has $100,627, losing 26% of his return to higher fees and taxes.

VIA Note: We have made very conservative estimates. In the real world, active management incurs fee and tax expenses of 3-4% , and over 30 years have a 95% probability of under-performing an index funds.