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Ready To Lose $180K In Fees For Your 401(K), IRA, HSA Or 529 Plan?

An unhealthy body might reside lots of parasites, but is your saving accounts be it 401(k), IRA or 529 plan considered healthy enough with bearable financial parasites? Financial Parasites in our IRA, 401(k), HSA or even 529 plan are the fees/charges/loads paid. Here I would like to show the effects of the financial parasites through comparing the performance of the funds to benchmark index. In this blog I would like to go into details how much are we potentially paying with really knowing we are paying them.

An article by Matthew Heimer published on Marketwatch.com titled "Savings for retirement could cost you $400k". From the title can you image you are actually paying that much of fees in your retirement savings? According to the a brochure published by SEC: "Mutual Funds - A Guide For Investor" there are up to potential/possible charges, fees or loads, they all have the same meaning to the fund holders: "FEES". the higher the fees the lower the returns the holders will eventually get.

Now let us go through the published Glossary with terms related to "fees" listed in the brochure:

1) "Account Fee-a fee that some funds separately impose on investors for the maintenance of their accounts. For example, accounts below a specified dollar amount may have to pay an account fee."

2) "Back-end Load-a sales charge (also known as a "deferred sales charge") investors pay when they redeem (or sell) mutual fund shares, generally used by the fund to compensate brokers."

3) "Contingent Deferred Sales Load-a type of back-end load, the amount of which depends on the length of time the investor held his or her shares. For example, a contingent deferred sales load might be % if an investor holds his or her shares for one year, (X-1)% after two years, and so on until the load reaches zero and goes away completely."

4) "Contingent Deferred Sales Load-a type of back-end load, the amount of which depends on the length of time the investor held his or her shares. For example, a contingent deferred sales load might be % if an investor holds his or her shares for one year, (X-1)% after two years, and so on until the load reaches zero and goes away completely."

5) "Exchange Fee-a fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group."

6) "Expense Ratio-the fund's total annual operating expenses(including management fees, distribution (12b-1) fees, and other expenses) expressed as a percentage of average net assets.

7) "Front-end Load-an upfront sales charge investors pay when they purchase fund shares, generally used by the fund to compensate brokers. A front-end load reduces the amount available to purchase fund shares."

8) "Management Fee-fee paid out of fund assets to the fund's investment adviser for investment portfolio management, any other management fees payable to the fund's investment adviser or its affiliates, and any administrative fee payable to the investment adviser that are not included in the "Other Expenses" category. A fund;s management fees appears as category under "Annual Fund Operating Expenses" in the Fee Table."

9) "No-load Fund-a fund that does not charge any type of sales load. But not every type of shareholder fee is a "sales load," and a no-load fund may charge fees that are not sales loads. No-load funds also charge operating expenses."

10) "Operating Expenses-the costs a fund incurs in connection with running the fund, including management fees, distribution (12b-1) fees, and other expenses."

11) "Purchase Fee-a shareholder fee that some funds charge when investors purchase mutual fund shares. Not the same as (and may be in addition to) a front-end load."

12) "Redemption Fee-a shareholder fee that some funds charge when investor redeem (or sell) mutual fund shares. Redemption fees (which must be paid to the fund) are not the same as (and may be in addition to) a back-end load (which is typically paid to a broker). TheSEC generally limit redemption fees to 2%."

13) "Sales Charge (or "Load")-the amount that investors pay when they purchase (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission. The SEC's rules do not limit the size of sales load a fund may charge, but FINRA's rules state that mutual fund sales loads cannot exceed 8.5% and must be even lower depending on other fees and charges assessed."

14) "Shareholder Service Fees-fees paid to persons to respond to investor inquiries and provide investors with information about their investments. See also "12b-1 fees."

15) "Total Annual Fund Operating Expense-the total of a fund's annual fund operating expenses, expressed as a percentage of the fund's average net assets. You'll find the total in the fund's fee table in the prospectus."

By referring to the list above, I check the mutual funds offered in my 401(k) and HSA (I use brokerage account to invest in individual stocks or ETFs, as suggested by Jim Crammer)

*Side note: Another recent video about 401(k) vs. IRA by Jim Crammer: video.cnbc.com/gallery/?video=3000266927 Here are the mutual funds available in my 401(k) and HSA Plans with the fees/charges/loads that I can find listed according to fees in ascending order:

1) Vanguard US Equity Index Fund (0.015%)

2) Bond Index Fund NL (0.022%)

3) SSgA Global Equity Index Fund - Class A (0.051%)

4) SSgA U.S. Inflation Protected Bond Index Fund-Class A (0.054%)

5) BlackRock EAFE Equity Index Fund - Class M (0.08%)

6) Vanguard Extended Market Index Fund - Institutional Plus Shares (0.10%)

7) Vanguard Short-Term Investment-Grade Inv (0.20%)

8) Interest Income Fund (0.316%) 9) Dodge & Cox Income (0.43%)

9) PIMCO Total Return - Institutional Class (0.46%)

10) Harbor Bond Institutional (0.53%)

11) Metropolitan West Total Return Bond M (0.61%)

12) Dodge & Cox International Stock (0.64%)

13) ING Clarion Global Real Estate Securities Fund (0.655%)

14) Fidelity Contrafund (0.74%)

15) PIMCO Low Duration D (0.75%)

16) Neuberger Berman Genesis Fund- R6 Class (0.78%)

17) Thornburg International Value I (0.86%)

18) T. Rowe Price International Small-Cap Equity Trust (0.90%)

19) Fidelity Growth Company Fund (0.90%)

20) Managers Intermediate Duration Govt (0.91%)

21) JPMorgan Large Cap Growth Select (0.91%)

22) American Century Mid Cap Value Inv(1.00%)

23) Neuberger Berman M/C Intrinsic Val Inv (1.09%)

24) Parnassus Small-Cap(1.20%)

25) Artisan Small Cap Investor (1.25%)

26) Davis NY Venture A (Load: 4.75%, Exp. 0.88%)

27) Victory Diversified Stock A (Load: 5.75%, Exp. 1.08%)

28) Oppenheimer Main Street Sm- & Mid-Cap A (Load: 5.75%, Exp. 1.19%)

Lets use a chart to illustrate the hypothesis:

The plot used the initial investment of $10000 at age of 25, and assumed base salary of $50000 per year with contribution rate of 5% and company match of 5%. Annual salary increase assumed to be 2.5%. the fees effect will be "magnified" after 20years, when 1% will lag behind in terms of growth. A merely 0.5% different in the total fees turns out to be $183474 of fees being sucked by the parasites. Compare the contribution made by the individual: $356737 and company matching of $356737. The fee of 0.5% equivalent to half (50%) of company matching...

Finally, a youtube video by Department of Labor:

IT'S YOUR MONEY, IT'S YOUR SAY. INVEST SMARTLY.