Cost-conscious consumers regularly decry the high cost of gas, food and airline tickets, but too few understand the costs associated with their investments. Sure, advisors understand the toll fees take on a portfolio over time, but getting the word out to the general public has always been hard.
In order to help, Vanguard announced Monday that it planned to use a new online cost calculator, social and traditional media channels, and online ads to educate investors about how to pay attention to the price tag of their investments.
“The less investors pay in expenses, the more of their returns they can keep, and that can compound over time,” Tim Buckley, managing director and head of Vanguard’s Retail Investor Group, said in a statement. “Americans need to save more overall to reach their long-term financial goals, and spending less on their investments automatically boosts the amount they can set aside.”
According the company, its research shows that a 25-year-old hypothetical investor who contributes 9% of a $30,000 annual starting salary (changing over time) to a balanced fund with expenses of 1.25% would be, at retirement, roughly $100,000 behind someone investing in a portfolio with expenses of 0.25%. All other things being equal, by choosing a fund that’s five times more expensive, an investor would forgo 20% of a portfolio’s value over a 40-year career.