3 Tools to Calculate the True Cost of Investment Fees in Retirement
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- Опубліковано 31 лип 2024
- Investment fees rob you of your wealth. High investment fees, such as the industry standard 1% of assets under management AUM, can literally cost you hundreds of thousands or even millions of dollars over a lifetime.
But what about investment fees once you retire? It turns out that a 1% fee in retirement can significantly lower the chance of success of your retirement plan and reduce your spending by 10% or more. In this video we look at 3 tools you can use to understand the impact of investment fees on your retirement plan.
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Timestamps
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0:00 Investment Fees in Retirement
1:40 Effect of Investment Fees While Saving for Retirement
3:56 Tool #1 (FICalc)
8:22 Tool #2 (Portfolio Visualizer)
12:20 Tool #3 (ProjectionLab)
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ABOUT ME
While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
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Stick with low cost index funds and avoid financial advisors who are only interested in enriching themselves.
I used to have an advisor who charged a 1.00% management fee. She divided my money into various stock and bond funds that charged on average about 0.8% fund fees. So 1.8% total, for me that was around $36,000 per year to get the same advice someone else with $100,000 to invest was getting for $1,800 a year.
Switched to Vanguard Professional Advisor, management fee of 0.30%, mostly index funds, total of all management fees around 0.70% annual management fees around $7,400.
Now I do it myself, index funds and Berkshire Hathaway stock, annual fees around 0.70%, so now my management costs are at $1,400.
Not rocket science.
You lost me.
Thx @Rob Berger. As always , another valuable topic. 👍
Great video Rob!
Rob, you always delivers with actionable financial information -- thank you!
I retired 2 years ago and spoke with a couple of advisors. I could not justify paying out the AUM fee. Low cost index funds and mutual funds are my focus along with diversification. Most active managers can't out perform the indexes after fees consistently or ever. If you do not use an advisor, you need to learn all that you can about other facets of retirement planning, including withdrawal strategies, tax planning, ROTH strategies, social security and most importantly budgeting.
@ROB Berger: great video. Just a thought and i don't know if this is something you would be interested in doing or not. I think a video showing how to make an estimated tax return for retirees using something like turbo tax. I think estimating taxes in retirement is a real need and not really taught anywhere.
Hey Rob, could you please talk about institutional funds (example vtsnx) ? How are they different from other index funds (vtiax) . Thank you 🙏
If you are retired and drawing down a typical 4% a year then 1% on the capital is a quarter of your income, 25%.
Yep. I read about an actual couple that had 2.5 MM under management, and spent 100K per year. So out of every 4 dollars that left their pocket, 1 went to the financial advisor. 😮
Of course %AUM advisors would say that they will improve your investments by more than their fee, and after looking at my performance in the years I wasn't working with an advisor I agree. But still, I can't stand fees that automatically come out of my retirement account and effect my compounding interest, so I now gladly write a check and thus far my advisor has more than paid for himself in sound advice I wouldn't have thought of on my own.
Hey Rob. Can you do a video on precious metals (Gold for example) soon? Thanks in advance!
A one percent AUM fee is like a 10% tax on a Roth account. This is because the fee is charged on all the assets in the account. The fee is the same on a taxable account, but paying 10% tax on a Roth account was the show stopper for me. This 10% fee occurs even if you make no money in the account. The fee structure is just wrong. Excellent review as usual Rob.
Correction, this is a 1% fee, that acts like a 10% tax on your accounts return, not a 10% fee.
I don't know why anyone would have a Roth account under management. The investment limits are relatively low, so you're not talking about unwieldy sums, and the investment choices are so simple. DIY.
I have always believed in lowest cost index funds. However, (after I was 'retired' from my company and rolled everything into an IRA) for equities, I first allowed half of my 'equities' portion under Fidelity's "Wealth Management", a team, which costs about a 0.51% fee, quarterly and compared it for over 2 yrs to the other half In low cost index funds. For about 2.5 yrs, the managed side outperformed - net of fees. Then I rolled all equities into that near the end of 2021. The stated goal of the type of account I am in is to outperform the S&P 500 over the course of the business cycle - net of fees. It consists of approximately 200 individual company stocks of mostly the large S&P 500 companies, with about 10% in large non-US companies (almost all in Europe). It's modeled so it includes all the sectors in the DJIA and periodically they buy/sell stocks - there's no fee for that. It doesn't 'beat' the index every month but has over the arc of 3-4 yrs now. I'm satisfied so far.
Quicken for windows(Mac Version does not) has an excellent retirement planner with what if planning..
The S&P Index Fund at Fidelity is 0.015%. It's going to be pretty difficult to beat over the long term in both performance and cost. If my math is correct that would be $150 for each million invested. See how many stock advisors can beat that!
I invest heavily in Fidelity's FXAIX fund.
@@JetDriver77 Same here!
One of my family members does this for a living with Fidelity, one of the worst ones out there IMO. They are millionaires, living on others hard earned money.
@Rob Berger off subject but do you think I should max out my 401k or take the 5% match and put the rest in a brokerage buying etfs? I also max out my Roth. I’m 41
I have 403. Can you talk about target funds
Rob is 50 bps acceptable for a solid investment advisor?
I've heard you endorse Empower and New Retirement software as excellent financial planning tools. Can you explain why you believe it's ok to link them to your accounts rather than to just manually input the data. I get it that it's much more time consuming to input the data manually and it doesn't update automatically. Giving anyone/any institution your username and password to critical investments seems extremely risky. I understand they pass through a 'data aggregator' but who has access to that information. I'm interested to hear what you have to say. It would be much more convenient to have the info auto-populate if the risk can be managed. Thank you Rob. Enjoy your videos very much.
I've used Empower (former Personal Capital) for many years with no issues. The way they link to your account is something called federated identity. In short, you are actually still authenticating to your institution's account directly and then a secure token is used to access your account balance and transactional data via your institutions APIs. So Empower does not need to store your actual credentials but only a secure token that only allows read-only access to your account data (and only from Empower). - hope this helps a bit.
@@asoliveri1 Thank you.
I'm rapidly moving most of my retirement into a 2 fund portfolio BUT WHY use a S&P 500 index fund as the Core for retirement years??? Don't Small and Mid-cap value index funds do much better than SP 500 funds? I used the portfoliovisualizer montecarlo for a 20 year simulation, and the SMALL CAP VALUE & MIDCAP VALUE asset class very significantly outperform the stock market asset class. (13.6% sc Value, 12.7% midcap Value, 10.4% stock market). Sure would appreciate your thoughts on this.
Rob how can I contact you with a question?
FSKAX, FTIHX, & FXNAX. Then go to sleep.
First