The Scariest 1%: The Impact of Fees in the Long Term
Summary: What’s a measly 1%? It’s a lot in terms of fees. We will show you the impact of fees in the long term. Fees can eat into your investments more than you realize and the impact of those fees in the long term can devastate your retirement savings.<br> Active Managing Loses<br> You’re paying your money manager for his or her expertise, right? They know all the secrets and tricks to picking the right stocks and making the right investments. They know things you will never understand. Well, <a href="https://www.ft.com/content/e139d940-977d-11e6-a1dc-bdf38d484582">they don’t.</a><br> According to the analysis, 99 percent of actively managed US equity funds sold in Europe have failed to beat the S&P 500 over the past 10 years, while only two in every 100 global equity funds have outperformed the S&P Global 1200 since 2006. Almost 97 percent of emerging market funds have underperformed.<br> But what about all the markets ups and downs? You need someone with expertise to make sure you don’t lose all of your money when the market is volatile. You don’t. Andrew did the math.<br> If you had invested $10,000 in 1990 in the S&P 500 and just let it ride until 2017, you would end up with $137,000, an average return of 11.3% per year. Those 28 years included two of the worst recessions in our lifetimes, 2001 and 2008.<br> The total return in that time was 1,058%! You made $127,000. The only way you would have lost money would have been if you had sold.<br> That’s how you get rich. It’s not sexy and exciting, but it works.<br> What’s So Scary About 1%?<br> Okay, well what if in that scenario you were paying a 1% management fee?<br> One percent is tiny; it’s nothing! It’s a single penny on each dollar. But just as exponential growth is the reason we invest, exponential growth is the reason we avoid high fees.<br> In our above scenario, at 1% we would have paid $11,000 in fees. You’re not earning exponentially on the money you earn when fees are eating into it. With a 1% fee over that 28 years, we weren’t earning an 11.3% return. We only made $95,800. We lost 24%, nearly a damn quarter of our gains!<br> If your advisor told you up front that his or her fee would be 24%, would you say yes? Of course not. But that is what you are saying yes to when you say yes to high fees.<br> <br> Preying on the Ignorant<br> Advisors that charge high management fees are preying on the ignorance of many investors. Money and investing all seem so complicated, and they can be. So, of course, you need someone who knows what they are doing to help you. This is your money! You can’t gamble with it.<br> And investing can be complicated, we make lots of things harder than they need to be. But investing doesn’t have to be cumbersome and you don’t need some specialized knowledge to make money in the stock market.<br> It’s like cleaning my house. I don’t like doing it, so I pay someone else to do it for me. But cleaning my house isn’t hard or complicated. I could do it if I wanted to or had to. And if my cleaner were charging me 24% of my income to do it, of course, I would do it myself. Handling your own money is the same. You might not like doing it but you can do it, and it will cost you less than paying someone else, way less. <br> But You Have This Whiz Kid<br> Your advisor is different, wears expensive clothes, has a fancy office, drives a swanky car. They must be doing something right; surely they are worth whatever management fee they are charging. Well, there is one way to find out.<br> Ask to see their portfolio and the returns. If they are outperforming the index and have been for some time, you have found the golden ticket. But trust us, they aren’t, and you haven’t.<br> But I Like My Guy or Gal<br> You have been with your advisor for years and so have several members of your fami...
