by Dave Razo | Feb 5, 2018 | Test Cat
“Overwhelmingly, mutual funds extract enormous sums from investors in exchange for providing a shocking disservice. “ David Swensen – Chief Investment Officer of the Yale Endowment
Three childhood friends, David, Tyler, and Joe, at age 35, all have $100,000 to invest. Each selects a different mutual fund, and all three are lucky enough to have equal performance in the market of 8% annually. At age 65, they get together to compare account balances. On deeper inspection, they realize that the fees they have been paying are drastically different from one another. They are paying annual fees of 1%, 2%, and 3% respectively.
Same investment amount, same returns, and Dave has nearly twice as much money as his friend Joe. Which horse would you bet on? The one with the 100-pound jockey or the 300-pound jockey?
When it came time for retirement, David, Tyler, and Joe each needed 60K for retirement. As you can see from the chart below, Joe (with the highest fee) ran out money before his 75th birthday while Dave’s money lasts until age 95.
Plan sponsors have a fiduciary responsibility under ERISA to determine if the fees paid by a plan to its service providers are both reasonable and necessary. According to public policy think-tank Demos, the average worker will lose $154,794 to 401(k) fees over his lifetime (based on annual income of approximately $30,000 per year and saving 5% of his income each year). A higher-income worker, making approximately $90,000 per year, will lose upward of $277,000 in fees in his/her lifetime (Source: The Retirement Savings Drain: The Hidden and Excessive Costs of 401(k)’s)
We can help you find the fees that you are paying—sign up here, answer three easy questions about your fund and we let you know the fees you’re paying.
If you want to learn how you might get rid of these fees, we may be able to help you with that too. We are acting as a FIDUCIARY, and as such are legally bound to provide you with the best investment advice for your particular situation, without regard for our own personal benefit. More importantly, we are ethically bound by our own standards—see our Mission, Code of Ethics and Investing