It's tempting to say "all this investing stuff is too complicated. I'm just going to find a financial advisor I trust to handle my investments." I know because I said that. Then I did that. I actually really like my financial advisor and do trust him, but is he worth the fees?
Let me walk you through the numbers: I was 25 years old and started investing $1,000/month. My financial advisor said his advisor fee was "only 1%." That didn't sound too bad to me. At the time I didn't understand that the funds he was putting my money in also had expenses. In total, I was losing about 1.5% to the fees and expenses. I didn't have a specific time frame for this investment, but lets say I kept this going until retirement at 65 years old. Assuming a 10% return, which is inline the historical annualized return of the S&P 500, that 40 years of disciplined investing could net me a pretty nice next egg of $6,324,000.
BUT WAIT! $6,324,000 is a ton of money, what am I complaining about? $6 million is based off a 10% return, but I have to account for the 1.5% lost to fees and expenses. Now I'm only getting a 8.5% return which produces a nest egg of $4,039,000 or $2,285,000 less than I would have received without the fees. I think I'd rather learn to be a DIY Financial Manager.
If you want to know how fees are impacting you, try out a few different scenarios in our Nest Egg Calculator.
If you want to learn more about being a DIY investor so you can avoid all the fees, please visit us again soon.