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- Expenses of 1% of my assets is such a tiny number - it's no big deal is it?
- If you expect to earn a long-run return of 9% on stocks and 3.5% annually on bonds and cash then a portfolio
of 60% stocks could earn an extra 17% without those fees.
- Adjusting for inflation to get real (after inflation) earnings, that same portfolio could earn an extra
43% return without those fees each year.
- Compounding matters too. Earning that extra 43% real return annually results in earning an extra
50% in 10 years, 63% in 25 years, and 90% over 50 years of investing.
Most people are paying expenses of 2-4% annually and don't realize it! Let's look at what costs are
out there.
There are two types of costs that one can control to optimize wealth building performance:
Fees from the pros working for us:
Some of these we can see and some are invisible.
- Mutual Fund Expense ratios average 1.25%
- Mutual Fund trading costs average 0.75%
- Mutual Fund soft costs which are hard to estimate.
- Advisor fees averaging between 0.50 and 2.00%
- Broker commissions and spreads
- Mutual Fund loads often from 4.00 - 6.00%
Taxes
Even with the reduced capital gains tax, an average portfolio is giving away additional 0.5 to 1.0% annually.
Our tax law combined with mutual fund behavior often causes the investor to pay capital gains taxes in years where the fund's
value declined. Simple tax efficiency is a key strategy to optimize returns.
What's Your Opportunity?
Click on the opportunity calculator below for a simple estimate of how much opportunity for additional real
earnings you have.
Opportunity Calculator
Requires MS Excel
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