High fees erode 401(k) plan performance.

The chart below from a Government Accountability Office report illustrates exactly how much internal expenses matter.

• Over the course of 20 years, a $20,000 investment, earning 7% annually and paying 0.5% annual fees, will grow to about $70,500.
• But if fees are 1.5%—a mere 1% difference—that same $20,000 will only grow to about $58,400. This is approximately a 17% difference in asset value.

Effect of a 1% difference in higher annual fees on a $20,000 401(k) balance invested over 20 years ¹

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iShares ETFs are a lower-cost alternative to traditional mutual funds, with expense ratios that are typically well below those of both active and index mutual funds.

The average expense ratio of an iShares ETF is 0.41%, versus the average active mutual fund expense ratio of 1.50%—a 1.09% difference that can result in significant savings at retirement.²

Low Expenses ²

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While iShares ETFs and mutual funds each hold baskets of securities, some key differences do exist. iShares ETFs trade on exchanges intraday at market price, which may be greater or less than net asset value, and shares of iShares ETFs are not individually redeemed from the fund. In addition, iShares ETFs seek to track a market index, before fees and expenses.

In comparison, mutual funds are accessed directly from the fund company or through a select broker, pricing generally occurs once a day, and investors buy or redeem shares at the end-of-day net asset value, less any applicable fees. Some mutual funds may charge redemption fees. Mutual funds may be either actively managed or track an index. The structure of both active and index mutual funds is similar, but the management strategy differs. Active mutual funds seek to outperform their benchmark while the goal of index mutual funds is to track their index. Consequently, active funds typically charge more than index-linked products such as an exchange traded fund, or an index mutual fund, for the increased trading and research expenses that may be incurred.

To learn more:
Understand the fees 401(k) participants pay »

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