Guy walks into a broker’s office, “I’d like to invest this $500.” Gets lost. Returns to 40 years later. Broker hands him his statement:
- Good news – his $500 is now worth $11,206.
- Bad news – The total of fees and commissions for those 40 years is $2,180.
- Worse news – Had the $2,180 been invested instead of paid out in broker fees, he’d have $20,910 – not $11,206
- Conclusion – At a mere 1.5% in annual fees and commissions, that single deposit had cost him $9,704
As unbelievable as it may sound, that’s the straight math – and something very similar is probably happening to you right now! But – you say – turning $500 into $11,206 is no small feat – the broker earned that money. Did he?
Let’s put the same $500 into the S&P 500 index. We don’t try to pick winners and losers – we don’t try to “time” the market – we just put $500 in on January 1, 1973 – and leave it there for 40 years.
Would you believe we’d have $20,910 (source: http://www.moneychimp.com/features/market_cagr.htm). The $9,704 difference is precisely the 1.5% in fees and commissions charged by the broker. In other words, the broker would have to out-perform the market by the margin of his fees – 1.5% in this case before he’d add a single penny’s worth of value to your account. And folks – that’s just not likely to happen.
I don’t have a magic strategy that will avoid the fees – but I do have a magic strategy that will refund them back to your estate – 100%. Reply to find out how.
