Have you been hearing about “fees” as the reason why 401(k)s and mutual funds are not performing up to expectations? We certainly have, but the most important part of this question is actually not about the fees, but “not performing up to expectations.” Why? Because if our money is increasing by 20%, 15%, 10%, or even 8%, we’re happy! Fees? Who cares? We’re making money!
The problem is that most of us are not making 20%, 15%, 10%, or even 8% every single year. And fees are eating into your hard-earned savings. There are all sorts of fees: some are completely explained, others are not as obvious, and some are downright hidden! The size and duration of fees should still be a concern because even 1% will have a significant effect on your long-term results.
We’re seeing a shift to “Index ETF’s” with very low fees and a reduction in “active management” of funds, thereby allowing for a lower cost. So, fees are starting to be addressed on Wall Street.
But, having low fees will not solve our “lack of performance” problem. The real culprit is volatility of the markets! Your investments will suffer much more due to volatility because of the time needed to recover from losses, and then the time to make a profit again, only to lose it again during a downturn.
Where is it written in finance that you have to lose 30 or 50 or even 70 percent of your money in order to make money? Only in the sales manuals at your investment advisor’s office. Remember signing a risk tolerance questionnaire when you opened the account? That protects your advisor when you lose money; it doesn’t protect you. We will expand on this next time.
Fees are important, but a distant second place.
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