AARP published a report in which it found that 71% of Americans believe they pay no fees at all to have a 401(k) plan. (Put another way, more than 7 out of 10 people in America today are completely unaware that they are even being charged a fee to participate in their 401(k) plan!)... [and] 92% admit that they have no idea how much they’re actually paying.
Let’s assume the stock market gives a 7% return over 50 years, At that rate, because of the power of compounding, each dollar goes up to 30 dollars.” But the average fund charges
you about 2% per year in costs, which drops your average annual return to 5%. At that rate, “you get just over 10 dollars. So 10 dollars versus 30 dollars. You put 100% of the capital, you took 100% of the risks and you got 33% of the return!
Ultimately, the problem with the average investor is that they have very low financial intelligence. They are, in fact, intimidated by money. So, rather than truly invest, they choose to hand their money over to a broker, let it sit in low-fee ETFs and collect next to nothing, so that it’s out of sight and out of mind.
According to a recent study from NerdWallet:
Almost 9 in 10 Americans (87%) have money
in a bank account, and about 3 in 5 (58%) have
money in an investment account. On average,
Americans think they will pay $2,244 in invest-
ment and banking fees over the course of
their lives. In fact, they could pay more than
$369,000 in lifetime fees for their workplace
retirement, IRA, checking and savings accounts...
Much like sending a prayer to a saint, people hope their broker will work miracles with their money. Unfortunately, saints probably have better track records with prayer than brokers do with investor money.
It’s time to start paying attention to that 401(k) account, instead of leaving it up to others to protect your investment. Pay attention to the fees that are coming out, the stocks that your money has been invested in and the fine print on your statement.
Don’t hesitate to explore other options if you’re not comfortable with where your money is going… because with the demise of pensions and the rise of the 401(k), it’s up to you to make sure that your retirement is secure.
If you don’t want to be a victim of such wealth-killing fees, it’s imperative that you move from being an average investor to a sophisticated one. One of our objectives is to help.