So, your investments did great this year. But how much did they cost you?

So, your investments did great this year. But how much did they cost you?

All things considered, 2020 turned out to be a pretty good year for small investors in many mutual funds, exchange-traded funds (ETFs) and 401(k) plans. The S&P 500

was up about 15% through mid-December; the Dow Jones Industrial Average

has risen by nearly 6% and the S&P aggregate bond index returned 7%. But how did you really do?

By that, I mean: how did your investments do after subtract what you had to pay in fees for them?

It’s an important question.

The question many investors can’t answer

And, as my “Friends Talk Money” podcast hosts Terry Savage, Pam Krueger and I explained in our recent episode about investment returns and fees, it’s a question many small investors have trouble answering because they’re unaware of the fees they pay. 

Here’s what Bob Bloom, a retired radiologist in Marin County, Calif., told Krueger (co-host of public media’s MoneyTrack and founder of when she asked how his investments did in 2020: “What I normally do is just look at [my investment statements showing] what I have the previous month and now what I have the next month. And if it’s showing ‘up,’ I’m really happy with it. I don’t know very much else about the workings of what I’m getting.”

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But, as David Sterman, a fee-only financial adviser with Huguenot Financial Planning in New Paltz, N.Y., told Krueger: the financial industry “has always loved operating a little bit in the dark, keeping clients in the dark, because that creates a culture of dependency on those firms. It’s kind of a ‘trust us, everything’s taken care of.’”

However, Krueger said, “seeing what’s behind the curtain is critically important. Individuals who invest in these funds and ETFs need to know how much these funds are paying themselves.”

How investment fees can add up

And sometimes, they also need to know how much their financial advisers and brokers are getting paid because, as clients, they own certain investments.

The amount taken out for fees can be stunningly high.

A recent Wall Street Journal article cited a new research study on a type of target-date fund (the kind that invests in other funds, known as “funds of funds”) that found these funds charged “an unnecessary 0.33 percentage point in 2017″ compared with similar ETFs. As a result, their investors were “out of pocket an extra $2.5 billion.”

Savage, a nationally syndicated personal finance columnist and author of “The Savage Truth on Money,” gave this true-story example: An investor put $100,000 into a growth-stock mutual fund 20 years ago and earned an average annual return of 8%, with dividends reinvested. Her account should have grown to be worth $411,580, based on that performance, Savage said. But due to the fees she paid, it gave her about $330,000.

“That is the true impact of excessive costs over the years,” said Savage.

We “Friends Talk Money” podcast hosts weren’t saying that the mutual fund operators, brokers and advisers didn’t deserve to get paid for their work. Just that their investors needed to know before investing what the fees would be and whether they could instead purchase similar, alternative investments with lower fees.

How ETFs can save you money

Sterman said that the last 10 years or so have been the advent of much lower-cost ETFs. “And the opportunity for savings with these funds is why we’re looking at saving $6,000, $7,000, $8,000 a year per client,” he said.

It’s also important, Savage noted, to understand that many mutual-fund companies sell investors what are known as different “classes” of the same funds, with varying fees. “That is a big secret of mutual funds that most people don’t know,” Savage said.

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So, it pays to ask your financial adviser or the mutual-fund company whether there’s a different class of the fund you’re considering that would charge you less.

Also, I noted on the podcast, certain types of mutual funds charge more than others because of the types of investments they hold and the way the funds are managed.

Why some mutual funds cost more than others

For instance, international-stock funds, typically, cost more than domestic-stock funds. And index funds—which buy and hold a diversified basket of stocks or bonds — generally have lower fees than what are known as actively managed funds, whose managers decide which stocks and bonds to buy and sell.

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Bottom line, said Krueger: “It requires doing some research and asking a lot of questions. And it may sometimes require switching advisers to one who’s going to be upfront with you.”

Read the prospectuses from your mutual fund and 401(k) providers to learn about the fees you pay.

As Savage said, those fees can really cut into what you ultimately earn from your investments.

“That money taken out in fees doesn’t get to grow in the fund,” she said. “So, there’s a long-term huge impact of paying too much in fees.”

Richard Eisenberg is the Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and Managing Editor for the site. He is the author of “How to Avoid a Mid-Life Financial Crisis” and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS Moneywatch.

This article is reprinted by permission from, © 2020 Twin Cities Public Television, Inc. All rights reserved.

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