Cost-efficient ETF Index Funds
When investing for retirement, costs matter. All else being equal, investments with
consistently low management fees can give you a head start in achieving competitive
returns and building a larger retirement nest egg in the long run. Exchange Traded
Funds (ETFs), a passively managed type of Index Fund, offer low expense ratios,
along with built-in diversification within market segments. Large or excessive fees
within actively managed mutual funds can diminish returns and make it more difficult
for the fund manager to add value.
Annual operating expenses for ETF index funds versus mutual funds*
Over time, ShareBuilder 401(k) participants can accumulate more for their retirement
by investing in cost-efficient ETF index funds instead of comparable traditional
mutual funds. For example, assume that a 35 year old individual invests $250 a month
until retirement at age 65 into a Growth Model Portfolio and the investment has
a fixed annual rate of return of 10.0% compounded monthly. After 30 years of investing
in an ETF with an expense ratio of 0.20% versus a mutual fund with an expense ratio
of 1.40%, the individual will have increased their retirement fund by $101,805
by paying less management fees. What's even more remarkable is that this amount
exceeds the cumulative contribution of $90,000 made during this 30 year period.**
To learn more about the differences between ETF index funds and mutual funds, see
our comparison table.
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The following ETF index funds are being compared against the Industry Average for
mutual funds and are available in the ShareBuilder 401(k) Plan:
- IWM - iShares Russell 2000 Index
- SPY - S&P 500 Index SPDR
- EFA - iShares MSCI EAFE Index Fund
- DVY - iShares Dow Jones Select Dividend Index
- AGG - iShares Barclays Aggregate Bond Fund
Visit our Investment Center
to view all model portfolios and ETF Index Funds available in the ShareBuilder 401(k)
and to access a prospectus for individual ETFs.
* ShareBuilder Balanced Model Portfolio versus the Industry Average for a mutual
fund with a balanced objective.
Source for Mutual Fund Industry Averages: Lipper front-end load funds.
** This hypothetical example utilizes a calculation based on a compounded fixed
rate of return. It is not a guarantee of future return or market performance. Investment
experience will vary with ETF selection and related management fees as well as changing
market conditions.