Ask the average American how much they pay in investment fees, and half will say they have no idea. That is the result of a poll conducted in 2018 on behalf of Nerdwallet.com. Of the other half who took a stab, the average guess was $2,244 over their lifetime. In fact, the average American with a typical 401(k) plan could cough up over $300,000 in fees and expenses. Yikes.
Erosion from fees can make a substantial dent in overall lifetime investment returns. Most investors could profit from a closer look at the costs of their investment strategy, but it can be difficult to sort through the myriad layers of expenses to get a clear picture of their burden over time. Here are a few places to look.
First, the good news: old fashioned trading commissions on stocks are almost over. Most discount brokers have eliminated them altogether, and full-service firms have are steadily approaching zero. However, other sales charges are alive and well.
Mutual funds are marketed inside various share classes. Front-end commissions or “sales loads” are charged on class A shares and can run as high as 5.75%, deducted from the initial investment. Class B shares charge a diminishing redemption fee upon sale of the fund, while C shares carry smaller but perpetual annual loads. Sales loads on funds are one way that brokers and their firms are compensated.
Thousands of mutual funds are now marketed on discount platforms that assess no sales charges. Sales representatives for no-load brokerage firms have a different compensation structure not as closely tied to specific product sales.