The Little Red Hen wanted to bake some bread. So she asked her friends to “partner” with her by helping harvest the wheat, grind it into flour, and bake the bread. None agreed. But when she went looking for “partners” to help her eat the bread – well – you know what happen
ed – they came out of the woodwork.
The money you and I save and invest is like the Little Red Hen’s bread – it attracts partners – many of whom we neither need, nor want. But they all want a share of our “bread,” and their cumulative impact explains why many of us feel like we’re making wealth-building progress, only to open up “underwhelming” statements month after month, year after year.
|
Partner |
How They Get You |
|
|
The Market |
When you put money in the market – you “partner” with the market – asking it to give you a return, but assuming all the risk of loss yourself |
|
|
Uncle Sam |
Federal Income Tax on Earnings |
|
|
|
Capital Gains Tax on Growth |
|
|
|
Penalty on Early Withdrawal from Tax Qualified Plans (IRAs, 401ks, 403bs, SEPs, Keoghs, others |
|
|
|
Estate Tax on Wealth Passed On |
|
|
|
Tax on Social Security Triggered by “too much” income from other sources |
|
|
Your State |
State Income Tax on Earnings/Growth |
|
|
|
Inheritance Tax on Wealth Passed On |
|
|
|
Tax on Social Security Triggered by “too much” income from other sources |
|
|
Your Municipality |
Local Income Tax on Earnings/Growth |
|
|
Stock Broker |
Trading Commission on the purchase and sale of securities |
|
|
|
Custodial/Account Management Fee |
|
|
Financial Planner |
Annual Fee assessed against assets – usually 1 – 3% |
|
|
Employer |
If you have a 401k, 403b, SEP, Keogh, or other company sponsored plan, there other expenses that are spread among the plan participants – meaning you! |
|
|
Insurance Company |
Cost of life insurance, annuities, etc. |
|
|
Attorney |
Cost of trusts, wills, and other instruments to ensure your estate passes as you wish |
|
|
Accountant |
Tax preparation fees, account reconciliation fees, Capital Gain calculations, etc. |
|
|
Mutual Funds |
Front-End Sales Charge (load) paid to your broker for introduction to the fund |
|
|
|
Redemption Fee – Charged when shares are sold/converted to cash |
|
|
|
Exchange Fee – to move money between funds within the same fund “family” |
|
|
|
Account Fee – charged to maintain account |
|
|
|
Purchase Fee – (different from a Load) – assessed by/for the fund Manager |
|
|
|
Management Fee – annual charge for the fund’s investing expenses |
|
|
|
Distribution – or 12b-1 Fees – deducted from your account to distribute funds |
|
|
|
Other – Service, Custodial, Legal, Admin, Accounting & Transfer agent fees |
|
The table above identifies some of the “partners” we take on when we approach wealth-building the way Wall Street wants us to approach wealth-building. It also shows the various – and sometimes sneaky ways they help themselves to what they seem to feel is their “cut.”
Maybe there are too many partners for you – there certainly are for me – which is why my site – and my mantra is “No More Wall Street.”
Want to learn how to dump a few partners – particularly those who either add no value – or can’t quantify the value they purport to add?
It’s not as hard as you think, and you might be surprised how good it feels when there are fewer hands in your financial cookie jar.
