The statistics that you see on an investment’s returns are not very important in the grand scheme of things. What you really should care about as an investor is the return that actually makes it into your portfolio as gains each year. As a child of the Great Depression, my grandmother was fond of the expression “they are nickel and diming me to death.” Without adjusting for inflation, we can understand her point: Numerous small expenses add up to big sums over time. This is true from the budgeting perspective, but, from the investment perspective, it is critical.
That is because even very small losses are magnified exponentially given the magic of compounding; these impressive sums are gains that you are not achieving in your portfolio. Those profits are going to whoever is charging you the fees. When you invest in an employer-sponsored retirement plan, there are layers and layers of fees. To maximize your returns, you must identify and control these fees as much as possible.
Trading fees are a big concern, especially when you are not using a low fee brokerage account. In my mad money account, I pay about $6 per trade. In my retirement account, I pay about $35 per trade. This means that the trade needs to be worth the fee. Rebalancing is key, but I suggest only doing that based on a time basis, such as once per year. Some investors do this on a percentage basis. That is fine, but you want to use a generous percentage over your target before you shift funds.
Last Updated: 6/25/2018