Do you know how much your 401(k) investments cost you every year?

In every 401(k) I've seen, the offered investment options are not free. If you aren't looking for it, the fees are easy to miss; custodians don't send you an itemized invoice with a line for "investment fees", but they take these fees from your account anyway. Although the fee, or 'expense ratio', is disclosed in each fund's prospectus, most people will never read a prospectus, and I don't blame them. At times it feels like these documents are written to be purposefully vague and complicated, even though they were created to do the very opposite.

To make things a little easier, most funds' fees can also be found online at sites such as Morningstar.com - just plug the fund in to the search bar and many times the expense ratio is right on the first page. For 401(k) funds, the expense ratio can vary widely based on what is available, but I typically see fees between 0.20%-0.85%. In my opinion, if a fund has an expense ratio over 0.5%, you should have a very compelling reason to own it. Just this week, I saw a fund that charges 0.97% just to own it. At that fee level, if the fund returns 7% a year, you lose ~14% of your earnings to the fee. The typical argument for these funds is that they use the higher fee to generate more return. To that I say, returns aren't guaranteed, but fees are.

The good news is that you can manage your fund fees once you know what you're up against. For many 401(k)s, you may have the opportunity to swap into a fund with similar characteristics at a lower fee. For portfolios that I build outside of a 401(k), I aim to keep the expense ratio below 0.3%.

While expense ratios and fund fees can be a lot to digest and keep track of, it's an important part of retirement planning that your financial advisor should be managing for you.

Want to see how much your 401(k) fund fees really cost you? Use this calculator: https://www.nerdwallet.com/calculator/401k-calculator