April 2, 2015
Why is it so important to keep your portfolio expense ratio down to it’s lowest level on your investments? How?
Why is it so important to keep your portfolio expense ratio down to it’s lowest level on your investments? How?
It’s important to keep your portfolio’s expense ratio down because that is the amount of return on your investments that you are not able to keep. The higher your expense ratio, the more of your money you are losing, and the worse your portfolio performance is. And because there is no evidence to show that funds with a high expense ratio do better than funds with low expense ratios, why pay for them?!
Index funds and ETF’s tend to have some of the lowest costs available, so one way to keep your expense ratios lower, is to invest in the funds like these that have no loads and the lowest possible expense ratios.
This comes down to one basic rule of money, the more you spend the less you have. If you spend money on a high expense ratio you will have less money growing for you and you will have money that is going away from your returns. If you spend 1% on fees, and you have $100,000. You are paying $1000 a year. But that $1000 is no longer growing for you at lets say 10%. So you are losing $1100 a year from it. If you had an expense ratio of .05% You are only losing $50.50 a year.
Great answers! Let’s recap.
(1) Lower expenses equal higher returns. It really is that simple.
(2) Get that expense ratio down to .2% and then even further to .1%. Financial freedom may follow!