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 yearswith 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 yearswith 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.

 

 

 

Insidiousness of Compounding Expenses


 

 

 

 

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