Sometimes investors ignore or don’t notice the impact of broker commissions and high fees on their investments. Now, there is an easy to use tool available at the Financial Industry Regulatory Authority, or FINRA website. FINRA is essentially the regulator of securities brokers and other investment firms and the website makes it easy to see what these costs can do to your long-term returns – and how much an ETF might save you. The tool is pretty intuitive and can be found here.
I recently ran an analysis showing the difference in returns between the American Funds Growth Fund of America A shares (the biggest equity mutual fund of them all) and the ishares S&P Growth ETF – an ETF highly correlated to the Growth Fund of America. I assumed I was rolling over a $90,000 401k, that each fund would grow 8%, and that I would retire in 20 years.
The results surprised even me. At the end of 20 years, the profit on the Growth Fund of America investment was $263,894, compared to the profit on the ishares S&P Growth ETF of $322,004 – a difference of $58,110. The commissions and higher expenses of the American Funds mutual fund had reduced the returns by over 19% – astonishing.
One more thing to keep in mind. The results don’t reflect the impact of taxes on your returns. If my investment wasn’t in a tax-deferred account, the differences in returns would have been much, much bigger.
