Little things can make a big difference. For example, on the men’s pro golf tour this year, the difference in average score per round between the number one money earner (Tiger Woods) and the player ranked 150th (Chris Riley) was a mere 3.4 strokes. However, Woods earned $9.5 million more than Riley!
For us mere mortals who are more reliant on 401(k) plans and IRAs to fund our future than our golf scores, there’s a similarly important number to manage: the fees attached to our retirement plans. A recent article in _USA Today_ used the example of someone with 35 years before retirement and $25,000 in a 401(k) plan. With no further contributions, an average seven percent annual return, and fees that shave half a percentage point off the return, the balance would grow to $227,000 by retirement. Dial those fees up to one and a half percent, however, and the balance would total nearly $65,000 less.
h3(matt). Matt’s View
p(matt). Most of us probably spend more time comparing prices on different brands of toothpaste than comparing fees on different investment choices. But the fee comparisons would be far more profitable. A good place to start is to find out the “expense ratio”:http://www.fool.com/news/commentary/2006/commentary06111520.htm of any mutual fund you’re considering. It’s a good way to compare operating fees across different funds. Average ratios range from 0.25% for index funds to 1.5% for actively traded funds. Then use that information (the lower the ratio the better) to help you choose your funds. The difference between low- and high-fee funds may not be enough to give you Tiger Woods’ lifestyle, but it’ll go a long way toward keeping you out of the financial rough in retirement.
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