Tips to Maximize Your Retirement Investments

To make sure you"re not missing out on retirement assets, make sure you're making the right choices

You want as little friction as possible between your retirement plan contributions and your investment returns, just like a swimmer shaving their legs before a race. What else might be causing needless friction? Expenses. The sensible thing to do is look at the cost ratios on your retirement assets to ensure you're not paying more than you have to.

Why is it significant? Let's take a look at an example.

Assuming an annual 7% return, what would your retirement investment look like if you opened a 401(k) at work and invested the maximum allowed amount of $20,500 (as of 2022) over 30 years in mutual funds? The fund's expense ratio will determine the outcome.

If the expense ratio were 1%, it would be valued at $1.62 million. If the expense ratio were 0.5%, it would be worth $1.77 million over 30 years. That half a percentage point higher fee would cost you $150,000 during your retirement period.

Now, you may be prepared to pay a somewhat higher fee for a well-performing actively managed fund that keeps outperforming benchmarks (which is pretty uncommon). But, all things being equal, make sure you're not paying more than you need to the fund managers.

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