When it comes to retirement savings, there are essentially two main strategies at play. One involves a plethora of fees and potential costs that chip away at your returns year after year, while the other is considerably cheaper and easier to grasp.

Armed with these details and considering only them, which option would you choose?

Most would obviously opt for the latter strategy – the one with lower costs and management fees. Correct?

Unfortunately, that’s not always the case. In the complex world of investing, financial advisors, funds, and fees, few truly grasp the fees they’re shelling out for account management and how they impact long-term returns.

That’s why understanding what you’re paying for portfolio management, trading, and everything else is crucial. And then, you need to know what percentage of your investment portfolio these fees constitute.

Here’s the breakdown.

Long-Term Investing: Fees You Need to Know

Depending on the types of investments you hold and who manages your investment portfolio, any number of fees could be weighing down your profits over time.

While some are necessary and worthwhile, others can be easily minimized with a slight adjustment to your investment strategy. Some common fees you should know and understand include:

401(k) Management Fees – These fees, often termed expense ratio fees, are charged by the company managing your 401(k). If your plan is sponsored by your employer, this may be entirely out of your control. They can range anywhere from 0.5% to 2%, and the difference between these percentages can add up significantly over time.

Financial Advisory Service Fees – Whether you’re using a personal financial advisor or a robo-advisor, you’ll be paying a certain percentage of your investment portfolio to avail their services. For instance, if you’re using a robo-advisor like Betterment and have investments of at least $100,000, you’d pay only a 0.15% fee. Conversely, if your investment is below $10,000, you’d pay 0.35%. According to a study by Personal Capital, the average advisory fees at major brokerage firms range from 0.82% to 1.53%.

Fund Expense Fees – Even if you hire professionals to manage your investment portfolio, you’ll still incur basic investment management fees. These could include mutual fund expenses, ETF expenses, or any annuity expenses you own. These fees largely depend on the investments at hand.

Load Fees – Some mutual funds charge front-end or back-end load fees as a form of sales charge. These loads could be anywhere from 3-7%, skyrocketing your out-of-pocket expenses in certain scenarios.

Transaction Costs – Typical trading-related costs involved in investing include transaction fees and brokerage commissions. Opting for low-cost brokerage platforms that don’t charge commissions can help minimize these costs.

Deciphering Your Fees

Interestingly, without doing a considerable amount of digging, you might never understand the fees you’re paying and what you’re set to pay over the years as you accumulate wealth. However, if you truly want to know, knowing where to look can be helpful.

Fortunately, the U.S. Department of Labor has mandated since 2012 that 401(k) plan providers transparently disclose fees annually to their participants. The easiest way to understand the types of fees you’re incurring due to employer-sponsored 401(k) is by looking at your annual statements or checking your 401(k) administrator’s website for details.

Reputable companies adhere to governmental guidelines and make fees explicitly visible for all to see. If they don’t, it might be prudent to reach out to your company’s HR department and ask some probing questions.

On the other hand, if your funds are directly invested in no-load fund companies, your fees would be easier to comprehend. Most likely, you’ll be paying ongoing management fees and administrative expenses. If your IRA is invested by a broker or financial planner, you’ll also face additional charges for their services.

How to Reduce Costs?

If your investment costs are higher than you anticipated, it might be time to consider a different approach.

Shannon McLay, a financial advisor at The Financial Gym, offers some helpful advice. For instance, if you’re looking for a diversified investment, options like ETFs and index funds, which are passively managed, are excellent low-cost choices.

However, McLay notes that generally, mutual funds tend to have higher fees. She says, “From portfolio managers to traders to research analysts, supporting a mutual fund comes with a lot of costs.”

McLay advises steering clear of mutual funds that charge loads, whether upfront or backend.

Explaining further, she says, “Load fees can be either front-end, where you pay the fee when you purchase the fund, or back-end, where you’re charged if you sell the fund within a certain period. Some funds will charge you up to a 5% upfront fee to buy into the fund, which means your investment takes a hit even before the market goes up by 4.4% if you bought into a small-cap fund in 2014. That’s a front-end load.”

Robo-Advisors: The Emerging Alternative to Traditional Advisors

Another recommendation from McLay is considering robo-advisors like Betterment or Wealthfront instead of traditional financial advisors. Full-service advisors typically charge at least a 1% fee to manage your investment portfolio, whereas robo-advisors charge significantly less for similar services.

Sam of Financial Samurai suggests that the majority of your investment portfolio should be in low-cost ETF index funds. “I’m talking 80% or more allocation to fund the rest,” he says. “For example, if you want to invest in large-cap dividend-paying companies, consider VYM, the Vanguard High Dividend Yield ETF, which has an expense ratio of 0.09%, compared to many other actively managed funds with expense ratios of 0.5%-1.2%.”

Best Way to Review Investment Costs

While you can delve deep into your investment costs and try to interpret them on your own, the best way to have a clear understanding of what you’re paying for investment is by signing up for a free account with Personal Capital and using their retirement fee analyzer. With this tool, you can accurately understand the fees you’re paying for investments.

I have several accounts linked to my account, which clearly indicates that compared to the benchmark fee rate of 0.50%, my overall fee percentage paid is relatively low. Since most of my investments are in low-cost Vanguard index funds, I currently only pay 0.15%. As I manage everything myself, I don’t incur expenses hiring financial or robo-advisors to manage my investment portfolio.

Personal Capital’s free retirement fee analyzer shows that a mere 0.77% in fees could delay your retirement by a whole 5 years.

Personal Capital’s retirement fee analyzer also allows you to see how your fees will play out over time. With this tool, you can tinker with your annual contributions and see how they’ll accrue returns and potentially change your fees over the long term.

Since signing up for a Personal Capital account is free, there’s nothing stopping you from seeing the true picture of your ongoing fees. Just take a few minutes to register and link your retirement or brokerage accounts to this service, so what are you waiting for?

Think It’s Not Important? Think Again

If you’re not feeling the pressure of the fees you’re paying for retirement accounts or other investments, reconsidering that stance might be wise. While seemingly trivial, the fees you pay for ongoing account management and investment can accumulate in unexpected ways and impact your investment portfolio.

Take, for instance, a recent analysis by the Center for American Progress. The study examined three 25-year-olds, all saving the same amount of money for retirement, but with three different levels of fees associated with their accounts—one paying 0.25% of assets, another paying 1.00%, and the last paying 1.30%.

If each worker saves 5% of their wages from 25 to 67 and receives full matching from their employer, totaling a 10% contribution, they would have $476,745, $405,454, and $380,449, respectively, in their accounts at retirement (assuming a continuous return of 6.8%).

In other words, the individual paying the lowest ongoing fee would end up with nearly $100,000 more in retirement. Keep in mind, these three individuals were saving the same amount for retirement each year.

The Bottom Line

Retirement savers and investors should realize that the fees they’re paying are important—even possibly more important than they imagine. Left unchecked, seemingly minor fee increases can wreak havoc on your investment returns. Fortunately, it doesn’t have to be that way.

The first step in reducing ongoing fees is accurately identifying what you’re paying and comparing it to benchmarks or averages. If your fees are too high, reconsider your entire strategy—whether you’re hiring a full-time financial advisor or using a robo-advisor, primarily purchasing a multitude of funds, or investing in low-cost index funds.

Every decision you make could and will likely matter in the long run. If you previously thought it didn’t matter, now is the time to change your mind and take action. While you might not want to face your fees, the fact is, you can’t afford not to.