Investing always involves paying fees to the intermediaries. While the size of the fees can seem small (most are less than 1% per year), the compound effect might not be that small. In this exercise you will Compare the expenses on two mutual funds that invest in identical stocks: S&P 500. The first fund is PEOPX (Dreyfus S&P 500 Index) and it's expense ratio is 0.5% per year. The second fund is VFIAX (Vanguard S&P 500 Index) with an expense ratio of 0.05% per year.
Assume that both funds will return 10% per year until YOUR retirement (you will have your own number of years here) and that you will invest $5,500 per year starting today all the way until you retire.
Calculate the difference in future values for PEOPX and VFIAX at your retirement age (Hint: subtract the annual expense ratios from the annual return of 10% for each fund and use the difference to compute future value of your contributions using Excel's function "FV").
IMPORTANT: After you calculate the difference, find a comparable item (an iPhone, a TV set, a car (which model?) etc.) that most closely represents this difference.