Is 1% small percentage?
That's what Wall Street and money managers want you to think.
They count on the phobia most people have of math to get investors to believe the few percentage points they charge for their "expert" money management skills is small potatoes compared to the huge sums of money they can make you (never mind that there's no evidence to show money managers can outperform the market - but that's another blog post!).
But just that little 1% can easily cost an investor tens or hundreds of thousands of dollars in lost savings.
Here's an excellent example from the book "Stop the 401(k) Rip-off!" that shows how (while this example uses a 401(k), other than the employer match in this example, the math holds true whether you have your money in a retirement account or not):
Say you have $75,000 in a 401(k). If you could reduce your 401(k) expenses by just 1% a year, that saves you $750. Not bad, but that probably isn't going to make or break your retirement.
But each year, you're adding to your 401(k) balance (at least you should be!).
So if you're contributing 10% of a $50,000 salary, that's an additional $5000 a year going into your 401(k). Add an employer match of $2500 and that makes it $7500 a year. After adding that $7500 and your portfolio going up 7% (a little below the historical stock market average), a year later you now have $87,750 in your account.
But now your fees have increased from $750 to $877 – an increase of almost 17%!
Add the magic of compounding and ten or twenty years down the line your 401(k) could easily be worth $250,000 to over $1,000,000. That 1% is now costing you $2500 to over $10,000 – every year.
Could losing that much each year make or break your retirement?
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