He Wants AI to Pick Winning Stocks for His $200,000 401(k). A 0.75% Fee Could Cost Him $1,400 More a Year Than a Low-Cost Fund. He’ll Pay the Extra Fees Even if AI Picks Losers
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Picture a 57-year-old with $200,000 in his 401(k). He has been reading reporting on AI-directed ETFs and wants software to pick his stocks. He expects the technology to lift his returns. He will pay the fee every year no matter what. The extra return may never show up.
A $1,400 Yearly Cost Before the AI Picks a Single Stock
Compare a hypothetical AI-managed fund charging 0.75% with a broad index fund charging 0.05%. On $200,000, that comes to $1,500 a year versus $100, a gap of $1,400.
Index funds can cost even less. Vanguard S&P 500 ETF (NYSEARCA:VOO) lists an expense ratio of 0.03% on its fact sheet.
The fund takes its fee out of assets whether the model’s picks go up or down. In a year when the AI picks losers, he takes the losses and still pays the fee. On a $200,000 balance, that’s $1,500 annually.
How a Small Fee Gap Becomes a $94,000 Shortfall
Assume both funds earn 7% a year before fees. That figure is only an example. After fees, the index fund keeps 6.95% and the AI fund keeps 6.25%.
After 10 years, $200,000 grows to about $392,000 in the cheaper fund and about $367,000 in the AI fund. That leaves him roughly $25,000 behind.
Over 20 years the gap broadens. The balances reach about $767,000 and $672,000, a shortfall of roughly $94,000. At 57, that 20-year stretch covers the years he will be taking income from the account.
Just to break even on fees, the AI model has to outperform the index by 0.7 percentage points annually before fund expenses, assuming comparable investment risks. It can outperform in some years and fall behind in others, but the extra fees keep coming. Dollars paid in fees never compound again.
One AI Fund’s Recent Record Trails the Index
Amplify AI Powered Equity ETF (NYSEARCA:AIEQ) uses an AI-driven process to pick stocks. Over the past year, it gained about 7.4%, while VOO returned 11.3%, leaving AIEQ several percentage points behind.
The year-to-date picture is similar. As of November 11, AIEQ had gained about 6.6%, compared with 10.9% for VOO.
The fund doesn’t simply copy the S&P 500. As of November 10, its largest holding was American Express (NYSE:AXP) at about 8.8%, followed by Caterpillar (NYSE:CAT) at roughly 4.7%. It also owns familiar technology names, including NVIDIA and Apple.
A single year doesn’t prove the model fails. Still, higher fees need to produce something worthwhile, whether that’s stronger returns or a different mix of investment risks. Results after fees, over a full market cycle, are what show whether the AI picks winners.
Check Whether His Plan Even Offers an AI Fund
Most 401(k) plans offer a fixed menu of index funds, actively managed funds and target-date funds. Usually the only way to buy an ETF like AIEQ is through a self-directed brokerage window, if his plan has one. Those windows can carry their own account and trading fees on top of the fund’s expense ratio, so the real cost can run above 0.75%.
Three Moves Before Paying Extra for AI Stock Picks
- Turn fee percentages into dollars. Pull your plan’s annual participant fee disclosure, which lists the expense ratio for every investment option. Multiply each ratio by your balance and compare the result with your plan’s cheapest S&P 500 or total-market fund. A $1,400 gap is easy to miss as a percentage and hard to miss as a dollar figure.
- Compare returns after fees over the same periods. Put one-, five- and 10-year returns, net of fees, side by side for any AI fund or brokerage-window option and your plan’s lowest-cost index fund. If the AI fund has no five-year record, its approach is still unproven.
- Raise your contributions instead. Saving more adds to his balance every time. Paying a higher fee takes from it every time.
Workers 50 and older can contribute up to $32,500 in 2026, and those aged 60 to 63 can put in as much as $35,750. If his 2025 wages exceeded $150,000, his catch-up money has to go into a Roth 401(k).
AI may eventually earn its premium. But until a fund shows it can deliver better returns after fees, he has good reason to keep that extra $1,400 a year in his own retirement account.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
