Investment Tips & Tools: Fee Impact
Beware the Fee Monster
Investment fees matter. A lot. Sometimes numbers alone don't convey how damaging high fees are to savings. Meet the Fee Monster.
Fees, operating rules, and investment objectives can vary greatly among vendors and across investments. Therefore, it is important to understand all of these before you begin contributing to any 403(b) investment. Additionally, some investments impose surrender charges or restrictions on withdrawals. It is important to know if there are surrender charges or restrictions on withdrawals before investing.
All mutual funds and variable annuities are required to produce a document called a prospectus, which details specific information about investment cost, objective, risk, performance, and operating rules. Ask to see the prospectus before contributing to a variable annuity or a mutual fund. Fixed-annuity products do not have a prospectus. Instead, they have a contract that details operation of the annuity. Ask to see the contract before investing in a fixed annuity.
On average, variable annuities charge 2.25% annually; mutual funds charge 1.4% annually; and no-load index funds charge 0.18% annually.
How Fees Affect Return
Total value of investment after 35 years, assuming $250 contributed monthly with an 8% average annual return:
Additionally, the state of California makes available a resource called 403bCompare which allows visitors from any state to learn fee and withdrawal information for many individual 403(b) products.
These can be expensive, punitive and complex products. Here's what you need to know.