Vanguard, the investment management firm and exchange traded fund provider, recently launched the “5x Phenomenon” marketing campaign that emphasizes the low costs of index funds and ETFs.
According to a press release, Vanguard argues that most consumers would not pay five times more than they have to, yet many individuals don’t know that they are doing it with most investments.
“$40 for a movie ticket? $18 for a gallon of gas? $125 for the latest best-seller?” Vanguard asked.
“The less investors pay in expenses, the more of their returns they can keep, and that can compound over time,” Tim Buckley, managing director and head of Vanguard’s Retail Investor Group, said in the press release. “Americans need to save more overall to reach their long-term financial goals, and spending less on their investments automatically boosts the amount they can set aside.”
For example, Vanguard calculates that if a 25-year-old hypothetical investor allocated 9% of a $30,000 starting salary to a fund with a 1.25% expense ratio, the investor would be about $100,000 behind someone who invested in a portfolio with an expense ratio of 0.25%. The investor essentially forgoes 20% of a portfolio’s value over 40 years. [How ETFs and Mutual Funds are Different]
“The missed opportunity for investors is that a couple of basis points may not seem significant on the surface,” Buckley added, “but, in the words of Benjamin Franklin, ‘a small leak will sink a great ship.’”
For more information on the mutual fund industry, visit our mutual fund category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.