Quote:
Originally Posted by Robbb
Thats all fine, however sometime add up what this relationship is costing you and I think you will find that over a 20 to 25 year period it is costing you 50% of your portofilio.
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You are correct. I posted this example last year and came up with a 40% reduction.
There have been many posts on TOTV concerning the AUM (assets under management) fee schedules that many financial advisors are charging. Personally, I have never paid such a fee.
The following example shows just how much money the advisor is pocketing over a 25 year period.
We need to make several assumptions.
1. $100,000 invested for 25 years.
2. 6% annual return.
3. NO AUM fees or other costs. OR
4. 1.25% AUM fee plus 0.75% other fees such as expense ratios and trades for a total annual cost to the consumer of 2%.
Now, get ready to gasp. Here are the results:
1. With zero fees: Account balance after 25 years - $460,000
2. With 2% total fees: Account balance after 25 years - $266,000
You have lost a whopping 40% of your account balance. Granted, there are costs with any investment but index funds at Vanguard, Fidelity and others are minimal. Obviously, your individual numbers will produce different results. Try running the numbers with a $1,000,000 portfolio.
There are people that should seek the help of an advisor but at least you now know how much it is costing you. Also, now you know how they can offer “free” dinners and polo tickets.
This is the rationale why so many people are suggesting very low-cost firms such as Vanguard, Fidelity, Schwab, etc. While not for everybody, it is a great way to build a substantial retirement portfolio.
Fees matter!