I got a complicated-looking letter from my retirement account administrator about a month ago. It was too long to understand and the only take away I got was my employer was no longer going to offer the Vanguard Index Fund (VINIX) I had selected as the landing place for my hard-earned cash.
I immediately got irritated. After all, I have been front-loading thousands of dollars of every paycheck into this fund over the last few months.
Max OOP had researched the hell out of this fund. It gave me access to invest in 507 of the largest companies in America at a rock bottom expense ratio of 0.035% annually. Normally someone would need $5 million just to be allowed to invest in this fund. Trust me, I don’t have 5 million dollars, but my employer gave me special access to drop my money here.
So for every $100,000 I invested with VINIX – my Max Out of Pocket would be a paltry $35 per year.
Much cheaper than the unreasonable NINE HUNDRED DOLLARS in annual expenses I would pay on the most expensive fund offered through my employer.
They said somewhere in the letter that if I didn’t pick a new fund they would pick a “like fund” from the new offering of index funds in early 2019. I threw the letter away and went on with life thinking I would just deal with it later.
Come to find out on 2/25/2019 they took it upon themselves to move my investments into another “like fund” called VIIIX.
For all practical purposes, this ACTUALLY IS the same fund. It invests in 507 of the largest companies in America. The top ten companies are all the same. Healthcare, my favorite sector, makes up 15.4% of both index funds. Let’s take a look:
Only two main differences:
- You normally would need $100 MILLION to invest in the new fund. My employer evidently waives this requirement.
- The expense ratio on the new fund is ONLY 0.02% compared with 0.035% I was paying to invest in my old fund.
So now for every $100,000 I invest with VIIIX I will only pay $20 annually compared to the $35 I would be paying otherwise.
There you have it – a 43% reduction in fees. May seem small – but this could easily turn unto THOUSANDS of dollars over my lifetime.
Kudos to my employer and retirement account administrator for doing the right thing. They didn’t go behind my back and increase my expenses but DECREASED them by over 40%. I would love to see how much this move will save the entire workforce over the next decade or two.
What is your annual Max Out of Pocket on your retirement balances?