This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

How Wall Street Eats A Third Of Your Savings And Makes You Work Longer





In my post from a few weeks ago, I explained how Wall Street wants your balls - that is, if you compare retirement savings to balls, as I did in the second video in that post.

Investment advisors and mutual funds take money (or balls) out of your account, somewhere around an average of 1.5% a year. But that's not the only cost to you, because you now have a smaller account, and you've missed out on the growth of the money that could have been in your account if it didn't go to a financial-services entity.

To illustrate this, let's assume you have $100,000 and you invest that money in the stock market via a mutual fund that charges 1.5% a year. Let's also assume that the stock market returns 8% a year for the next 20 years, but paying 1.5% knocks your return down to approximately 6.5%. (Yes, paying some mutual funds and investment advisors leads to market-beating returns, which I'll get to later.) Here's what the next two decades could look like:

Year Value at the End of the Year Annual Fees Cumulative Fees
1 $106,500 $1,500 $1,500
2 $113,423 $1,598 $3,098
3 $120,795 $1,701 $4,799
4 $128,647 $1,812 $6,611
5 $137,009 $1,930 $8,541
6 $145,914 $2,055 $10,596
7 $155,399 $2,189 $12,785
8 $165,500 $2,331 $15,116
9 $176,257 $2,482 $17,598
10 $187,714 $2,644 $20,242
11 $199,915 $2,816 $23,058
12 $212,910 $2,999 $26,057
13 $226,749 $3,194 $29,251
14 $241,487 $3,401 $32,652
15 $257,184 $3,622 $36,274
16 $273,901 $3,858 $40,132
17 $291,705 $4,109 $44,241
18 $310,665 $4,376 $48,617
19 $330,859 $4,660 $53,277
20 $352,365 $4,963 $58,240

Your initial investment more than tripled in value. To quote the Schoolhouse Rock song about interjections, “Hooray!” But along the way, you paid a total of $58,240 in fees. (“Eeks!”) That 1.5% you paid each year ended up being worth 17% of your ultimate investment. (“Drat!”)

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs