Wall Street Is Stealing Our Retirement Money Is An Understatement
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 a handful of fees that we 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 the prospectus. Justification for some of these fees is baffling. Below are just some examples:
- Most of the fees are not mentioned in the prospectus.
- Maze of fees is so intricate that it is impossible to determine the exact amount.
- Tax cost is your share of capital gains for purchasing a mutual fund after it has appreciated. Meaning you don’t share capital gains, but you share capital gains tax!
- Cash drag is paid to maintain liquidity. Meaning you pay a 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 impacts on our savings in hard to comprehend. $100,000 in our savings today compounding 7% annually will grow to just over $760,000 in 30 years. Add a conservative 2% fee, and our savings drop to just over $430,000. That’s 43% of our savings lost to fees!
What if we could beat the market? Story of Warren 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 our financial advisor will not tell us about
My search for an investment option that is safe, has a 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. Financial advisors will never tell us about this because they get paid to keep us trapped in the stock market.
Comments (8)
Don’t forget about fees per trade - although less of an issue because some major institutions like Schwab & TD Ameritrade now have no fees on stock trades. I expect all brokerage houses to do the same in the near future. But, this could cause them to look elsewhere to make up the revenue.
Suzanne Player, almost 4 years ago
All of this is good information to have, but doesn’t necessarily mean you shouldn’t invest in your 401(k). Over half of all companies that offer a 401(k) plan offer a company match as well, which instantly doubles the amount you had invested up to the matching percentage. On top of that, you have the tax benefits of a traditional 401(k) that saves you money on your taxes that year and then grows tax free from capital gains tax. If you are really lucky, and have access to a Roth 401(k), you can now invest your post tax money, never have it touched by capital gains tax as it grows, and then you get to take it out tax free. That is potentially millions in tax free growth! That isn’t to say I don’t believe in passive real estate investing as well, but completely writing off the 401(k) as a scam from Wall Street is just not true.
Jared D. Lambrecht, almost 4 years ago
Great information. This is discussed in Tony Robbins book Unshakeable. Taxes are another killer. A balanced portfolio of index funds across the world has its place in a portfolio along with real estate.
Jared Sawyer, almost 4 years ago
Great information. This is discussed in Tony Robbins book Unshakeable. Taxes are another killer. A balanced portfolio of index funds across the world has its place in a portfolio along with real estate.
Jared Sawyer, almost 4 years ago
I'd say my investments are divided about half and half between real estate and the mutual funds in my retirement funds, at least they were. Since the market went back up post-Covid I have been slowly taking money out for the simple reason we are still in a pandemic and recession. I do pay attention of fees Now I have a lot in money market. My rental properties remain steady. I probably won't be buying anymore properties for awhile but I'm still looking for the deal.
Susan Maneck, almost 4 years ago
I'd say my investments are divided about half and half between real estate and the mutual funds in my retirement funds, at least they were. Since the market went back up post-Covid I have been slowly taking money out for the simple reason we are still in a pandemic and recession. I do pay attention of fees Now I have a lot in money market. My rental properties remain steady. I probably won't be buying anymore properties for awhile but I'm still looking for the deal.
Susan Maneck, almost 4 years ago
Great article and well written! Thank you for sharing, and hopefully leading folks on their way to creating generational wealth through passive real estate investments.
Sean Cullen, almost 4 years ago
Great post! Thank you for shedding light on the true destructive cost of (hidden) fees! This is exactly why all my stock investments are at Vanguard!
Cameron Tope, almost 4 years ago