This ETF Fee Could Cost You $479,000
42sThe shocking cost difference between two identical S&P 500 funds grabs attention and makes investors think about hidden fees.
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This video explains the significant impact of expense ratios on investment returns, using a comparison between a low-cost S&P 500 ETF (VOO) and a high-cost Rydex S&P 500 Class C fund. It demonstrates how a seemingly small difference in fees can drastically reduce long-term wealth, emphasizing the importance of checking expense ratios before investing.
Chapters
[00:03]
Two S&P 500 funds, vastly different fees
VOO, a popular S&P 500 ETF, charges a 0.03% expense ratio ($3 per $10,000 annually). The Rydex S&P 500 Class C fund tracks the same index but charges 2.36%, which is 78 times more for the identical thing.
[00:30]
The cost of high fees over 30 years
Investing $100,000 in each fund with 8% annual returns for 30 years: VOO grows to $1,000,000, while Rydex ends at $519,000. The 2.36% fee effectively halves your money because it compounds over time.
[00:58]
Why people invest in high-fee funds
The Rydex fund is a Class C share, often sold by brokers, and holds over $11 million in assets, indicating that people are buying it despite the high fees. The video advises checking expense ratios before investing.
Expense ratios are a critical factor in investment returns; even small differences can compound into massive losses over time. Always compare fees before choosing a fund.
Mentioned in this Video
Study Flashcards (5)
What is the expense ratio of VOO?
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What is the expense ratio of VOO?
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0.03%
00:15
What is the expense ratio of the Rydex S&P 500 Class C fund?
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What is the expense ratio of the Rydex S&P 500 Class C fund?
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2.36%
00:30
How much more does the Rydex fund charge compared to VOO?
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How much more does the Rydex fund charge compared to VOO?
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78 times more
00:30
If you invest $100,000 in each fund with 8% returns for 30 years, what is the final value of VOO?
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If you invest $100,000 in each fund with 8% returns for 30 years, what is the final value of VOO?
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$1,000,000
00:44
If you invest $100,000 in each fund with 8% returns for 30 years, what is the final value of the Rydex fund?
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If you invest $100,000 in each fund with 8% returns for 30 years, what is the final value of the Rydex fund?
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$519,000
00:44
💡 Key Takeaways
📊
78x fee difference
Illustrates the extreme disparity in fees for identical index tracking.
00:30
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High fees halve returns
Demonstrates the devastating compounding effect of fees over long periods.
00:44Full Transcript
[00:03] also an S&P 500 fund, but this second one, the Rydex one, is a rip-off and one, the Rydex one, is a rip-off and it's going to cost you $479,000, but why? VOO, the first one, is a popular S&P 500 ETF and it charges you
[00:15] an expense ratio or a yearly fee of 0.03%. That means for every $10,000 you put into VOO, you pay $3 in fees on an annual basis. The Rydex S&P 500 Class C fund, it also tracks the S&P 500, so
[00:30] same companies, same weights, but it charges a 2.36% expense ratio. That's 78 times more for the identical thing. If you put 100k in each fund with the same 8% market returns for 30 years, with VOO, you're
[00:44] dollars, but with Rydex, you're going to end up with 519,000. That 2.36% fee basically took half of your money because it takes the fee and everything that the fee would have earned every year for 30 years. Now, I
[00:58] know this is an extreme example, but you can even see that active ETFs will that's something you need to consider when investing. Here's a table of fees be shooting for if you want to screenshot it. As to why anyone would
[01:12] ever invest in the Rydex fund, well, it is a Class C share, so it might be sold by brokers. It holds over 11 million dollars in assets, so people are buying and check your expense ratios before investing.
