And they take that money whether they made you any money or not In 2008 they

And they take that money whether they made you any

This preview shows page 35 - 38 out of 263 pages.

And they take that money whether they made you any money or not. In 2008, they took about $100 billion in fees and commissions while lowering the value of your retirement account by over 40 percent. And if you think that’s bad, consider this: What they take when they rip you off for 25 percent of your gain is far more than 25 percent. Over your investing life, that 25 percent fee off the top robs you of 60 to 70 percent of your expected gain by the time you reach retirement … and continues to rob you thereafter. * I repeat: 60 percent of what you should have gotten from your investments is gone by the time you are sixty-five, taken by fund managers and fund administrators. How is this possible? When you set up these accounts and signed on the dotted line, they certainly never told you they’d be putting 60 percent of your lifetime gains in their own pockets. It’s a sneaky scam based, just like its polar opposite— stockpiling —on the power of compounding. As I mentioned before, Einstein said the most difficult to understand and yet most powerful force in the universe is compounded interest. While your eyes glossed over those itty-bitty fees and numbers, your fund manager figured out that they add up big-time. Let’s say Jane puts $1,000 into a 401(k) account when she starts earning money in her first real job at age twenty and keeps adding $1,000 a year until she’s eighty-five. The money is invested in a broad- market mutual fund. The fund performs in the top 30 percent of all funds and achieves an annual rate of return that matches the S&P 500 index for all the years she is invested. For the last hundred years the S&P 500 index has averaged 8 percent. Her fund carries normal fees as follows: management fee of 1 percent, marketing fees of .05 percent, and an administration fee of .05 percent. Jane accumulates $1.3 million in her retirement account and
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congratulates herself upon her retirement on doing such a disciplined job of investing. What she doesn’t realize is that if she hadn’t been stuck paying that tiny little fee, she would have $3.7 million in her account (the gray line).
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The black line is $1,000 a year invested at S&P 500 index hundred-year average rate of return less mutual fund fees and commissions. The gray line is $1,000 a year invested in the S&P 500 index itself (symbol: SPY). Same market. Same diversified investment. The fees ripped $2.5 million right out of her hands and into those of her trusted advisers. Granted, it does take time for those fees to add up and drag the return way down. There’s little difference between the two lines until she’s about forty, but the closer she gets to retirement from that point onward, the greater the impact. By the time she’s sixty-five, the fees have removed half of her retirement capital. By the time she’s in her nineties, they’ve taken two- thirds. Gone. And for what?
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  • Spring '20
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