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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!”)

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