| the FI Weekly, Tuesday September 16th, 2025 |
| Hi ChooseFI Listeners, This is Brad, host of the ChooseFI podcast. Each week I share ideas to ponder, inspire, and motivate you on your own journey to FI. Impact of Fees on Your Investments I believe in long-term investing in broad-based, low-cost ETFs and mutual funds. But why? A few main reasons: – I think it’s highly unlikely I can beat the market over a 50+ year investing career, so I want to match the market – Buying an S&P 500 or Total Stock Market ETF/fund requires no special knowledge, and I believe it gives me the best chance of maximizing my net worth over 50+ years. – The fees on these types of investments are incredibly low (often just a few hundredths of 1%) and you can easily DIY invest at every major brokerage. I want to focus on fees today, as it isn’t entirely intuitive just what a difference fees make in your overall net worth. Aubrey Williams, a longtime member of the ChooseFI community, who runs his “Advice-Only, Fee-Only, Fiduciary at All Times, Hourly Financial Planning for FI” advisory business Open Path Financial, put together a google sheet that show just how impactful fees are on your investments. He ran a horse race for someone starting with $1,000,000 (the starting point could be anything) and investing for different lengths of time. In the low-cost scenario, he assumed a 0.05% expense ratio and a 7% annual gross market return, for a net return of 6.95%. In the financial advisor scenario, he assumed that advisor would charge you a 1% AUM (assets under management) fee and would put you in an expensive mutual fund with a 1% expense ratio. This took the estimated 7% annual gross market return down to a 5% net return. Let’s compare the 5% return to the 6.95% annual return when invested for a lifetime: – After 30 years, you’ve lost 42% of your net worth to additional fees ($3.2 million lost). – After 40 years, you’ve lost 52% of your net worth to additional fees ($7.7 million lost). – After 50 years, you’ve lost 60% of your net worth to additional fees ($17.3 million lost). If you want to check out Aubrey’s spreadsheet, here’s the link. You can click “File” then “Make a Copy” to play with the sheet and change the inputs as you see fit. |