Since we moved to California I’ve pitched in to take my turn at steering the family finances. I’ve setup Quicken, combined our money, put us on a strict budget and examined all our retirement finances. One of the things I became obsessed with is our retirement funds. One thing I focused on was a Simple IRA at Fidelity that I can’t move to be managed by Sarah’s broker who has most of our nest egg. Since I still work at the company where I started the Simple IRA, I have to leave it there and manage it myself.
I had just blindly been putting it into a lifecycle fund with basically tracked the performance of the markets and had a 0.82% annual expense rate. That means that no matter what the market did I was paying 0.82% in expenses. I thought this was good when I started the plan until I checked out some other ETFs (Exchange Traded Funds) that can have expenses as low as 0.07% and also perform as well (or as bad as) the overall market.
Then this article appeared in the Wall Street Journal about how you can construct a pretty impressive portfolio based around ETFs for just 0.15%. Why bother? What’s the difference? Well the difference of 0.67% is real money. Annually you can shove in around $10,000 tax free to most retirement vehicles like IRAs and 401ks. That 0.67% is $67 extra you can put in. If you’re not at your first job and you’ve been saving like this for five years, then you’ve got at least $50,000 in your retirement account. Every year you save 0.067% you have an additional $335. Over time that starts to add up. After 10 years you probably have at least $100,000, and that’s $670 extra you’ve saved for yourself, without actually putting any more money into the account.