71% of Americans believe they pay no fees at all to have a 401(k) plan (AARP Research)
Well, they are dead wrong. Below are just handful of fees that you pay (Forbes, The Real Cost of Owning Mutual Fund, 2011).
92% of Americans admit they have no idea how much they are paying (AARP Research)
I don’t blame these people. Many of these fees are never mentioned in prospectus. Justification for some of these fees is baffling. Below is just some examples of this non-sense:
- Most of the fees are not mentioned in prospectus
- Maze of fees is so intricate that it is impossible to determine exact amount
- Tax cost is your share of capital gains for purchasing a mutual fund after it has appreciate. Meaning you don’t share capital gains, but you share capital gains tax!
- Cash drag is paid to maintain liquidity. Meaning you pay fee to get your own money
Who cares? These are small fees. Right? – Wrong! Dead Wrong!
Compound interest is easy to understand mathematically, but its impact on your savings in hard to comprehend. $100,000 in your savings today compounding 7% annually will grow to just over $760,000 in 30 years. Add conservative 2% fee, and your savings drop to just over $430,000. That’s 43% of your savings lost to fees!
What if you could beat the market? Story of Warrant Buffet and $1,000,000 bet
In 2007, Warren Buffett made a $1 million bet with a New York-based hedge fund that investing in an index fund over 10 years would outperform if the same amount was entrusted with hedge fund managers. 10 years later he won the bet. Hedge fund managers were not even close. Money was donated to Girls Inc. of Omaha.
Here is what some of the smartest people in the business have to say about beating the market:
“We’ve long felt that the only value of stock forecasters is to make fortune tellers look good.” –Warren Buffett
“I believe that competing in the markets is more difficult than competing in the Olympics, because there are more people trying to make money doing it and it’s a zero-sum game, yet most people think that they can do it.” – Ray Dalio
“.. 1200 gorillas in a gymnasium, each one flipping a coin. After ten flips of the coin, one of the gorillas will have thrown heads ten times in a row… We would always label the gorilla as lucky, but on Wall Street, he’s labeled as a genius.” – Jack Bogle
There is a simple solution which your financial advisor will not tell you about
My search for an investment option that is safe, gives significant rate of return, isn’t subject to stock market fluctuations, and doesn’t cost too much time led me to the world of Passive Real Estate investing. Your financial advisor will not tell you about this because they get paid to keep you trapped in stock market.
P.S. High-paid professionals are always wondering where to invest their savings. They don’t want to take more risk with stocks because they already have lot of money invested in stock market. Not knowing where to invest, they end up with lazy money sitting in bank.
At Wealthy Together we help high-paid professionals grow wealth by teaching Passive Real Estate Investing. Sign up for FREE E-Mail Education Series and make more money with less risk.