Financial independence Portfolio expense ratio

The US government provided a lot of cheap money to the market.  This led Price to Earnings ratio for S&P500 returned back to 21.5, which is to 2% yield.  More over this is based on prior year earning for a lot of companies! In times like this portfolio expenses are one of the things to look at.

Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement. All six of my investments are passively managed.

However, the financiers are always find a way to skim a little bit more. I decided to calculate, how much am I paying a year for my passive financial independence portfolio?

My funds charges:

	Charges, %	Annual charge, USD
Emerging Markets Stock Index Fund	0.23	256
Eurozone Stock Index Fund	0.12	126
U.S.500 Stock Index Fund	0.10	132
Global Small-Cap Index Fund	0.29	303
Growth Fund	0.259	129
Kids S&P500 funds	0.06	23
Total		969

Average expense ratio (excluding children account) is 0.19%    How much would I pay for my portfolio for higher ratio funds:

Charge, %	Annual charge, USD
0.19	946
0.5	2,514
1	5,028
1.5	7,542
2	10,056
2.5	12,570

 Those charges are independent of fund performance.  Lets see how much my portfolio would grow over 20 years with those charges. We will assume 5% return. Essentially the fees represent drag on the performance:

Charge, %	After 5 yrs	After 10 yrs	After 15 yrs	After 20 yrs	After 25 yrs
0%	641	818	1,044	1,332	1,700
0.06	639	813	1,035	1,317	1,676
0.19	635	803	1,016	1,285	1,625
0.5	626	780	972	1,211	1,509
1	611	743	904	1,100	1,338
1.5	596	708	841	999	1,186
2	582	675	782	907	1,051
2.5	568	643	727	823	931

 Graphical representation of $500K nest egg performance, assuming 5% return against various fees:

This is untold story of financial sector success.  Each 0.1% hike in fees on $500K portfolio is $38K  in fees over 25 years.  The beauty of this process is that with higher returns, you will pay more money.  The same 0.1% hike represents $60K, if market grows at 7%. 

For a hardworking person, who is not financially educated or not looking at the fees this is a trap. One percent vs half of a percent may not look like a large increase in fees.  At the retirement its difference between $1,509K and $1,338K.

The actual difference is even higher, as I assumed no annual contributions, other than initial investment.   If you look around, this is how finance services are mainly operate – percentage of your spent, investments, everything. They chipping away your wealth, providing nothing in return.