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If you’re anything like me, you subscribe to the Coffeehouse Investor’s way of investing and you’ve learned How to Build Wealth, Ignore Wall Street, and Get On with Your Life. This philosophy means you put your money in an investment portfolio that is designed to hit the stock market average with as little attention to it as possible.
This is a great approach. One that I both participate in and recommend to others. Why? Because it’s: 1) easy, 2) less stressful and 3) shown to have good returns over time. I’ve left one of the reasons out. Can you guess what it is? Seeing how this post is about fees killing your portfolio, it’s not too hard to guess. THE FEES! The most important aspect of this approach in my opinion is the focus on low cost investments. Let’s talk about two of the most common fee structures:
Percentage of assets managed
This is the most common way fees are structured in the financial industry. It’s usually a tiered approach:
In addition to the fees described above, there will be fees associated with the type of investment you have. Such as: actively managed funds (highest fees), index funds and ETF’s.
Similar tier structure as listed above, but a fixed fee for a range of assets in your portfolio.
Case Study – Meet My Friend Bob (Fake Name 😊)
Bob work a typical 9-5 job as a lab technician at a leading healthcare company. He makes $55,000 a year. To make this simple, let’s ignore any potential company match programs that Bob may take part in. He invests $12,000 per year for his 35-year career. Let’s look at how fees drastically impact the value of your portfolio over time:
As illustrated, the impact of fees can be HUGE. Over a lifetime of work, a millennial can forget three quarters of a million dollars by not paying attention to fees. I don’t know about you, but I’d rather spend time understanding even just the basics of investing and lowering my fees than lose $750,000 over my lifetime.
Fees Are Manageable
The good news? With companies like Vanguard, Wealthfront, Betterment, Acorns, etc – there are plenty of options to keep your fees between 0 – 0.5% over the life of your investments. You aren’t going to eliminate all fees, but you can make sure they’re as low aw possible. But there are economical ways as well.
I currently invest through the following companies with associating fees:
Your Investment Portfolio – Now What?
I hope through this simple explanation, you now understand the impact fees can have on your portfolio over time. Check out my book review of the Coffeehouse Investor and How to Build Wealth, Ignore Wall Street, and Get On with Your Life if you want to learn more about how to invest in low cost index funds.
If you want to learn more about going from a negative net worth to being a millionaire, check out my Book Review: Set For Life by Scott Trench.
Do you know the fees you’re paying? What’s the impact of fees to your portfolio?
Call To Action: find out what fees you’re paying and the impact they have on your portfolio.
-My Strategic Dollar