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<< Read More: The Biggest Myths In Investing, Part 3 – You Need To Beat The Market
<< Read More: The Biggest Myths in Investing, Part 4 – Indexing is Average
<< Read More: The Biggest Myths in Investing, Part 5 – Bonds Lose Value if Rates Rise
<< Read More: The Biggest Myths In Investing, Part 6 – Gold Is A Good Portfolio Hedge
I’m not gonna tip toe around this topic. My career in finance has convinced me that most financial firms charge way too much in exchange for the value they provide. The financial industry has gotten away with this for a long time because the average investor is woefully uninformed about financial matters, but as the Internet has democratized information and helped firms scale their businesses the high fee financial firms have come under fire. This is a fantastic development.
Unfortunately, there’s a lot of work to be done here. There are still trillions of dollars captured by hedge funds, closet indexing funds, high fee 401K plans and high fee investment advisors. What’s the damage? Tremendous. So let’s put it in perspective.
When we think about our retirement goals and how much money we need we should think in terms of our real, real returns. This is the real amount of money in your pocket after inflation, taxes, fees, etc. Most of us hear about inflated stock market returns like 10-12% historical and tend to assume that nominal figure is what we’re shooting for. But along the way we incur so many frictions that we don’t consider the other factors eating into those nominal returns. For instance, here’s a visual showing the difference between a 6% compound growth rate versus 10%:
