Money for Tomorrow by Whitney Elkins-Hutten

Author:Whitney Elkins-Hutten
Language: eng
Format: epub
Publisher: BiggerPockets Publishing

YOUR CHAPTER ACTION PLAN

Review and optimize how you are using insurance to outsource liability: Health

Disability

Automobile

Homeowner’s/renter’s

Umbrella

Life

Consider opening a whole life insurance policy specifically designed to build your own personal “bank.”

CHAPTER 9

The Four Horsemen That Can Destroy Your Wealth Growth: Fees

If you don’t have a plan for your money, I guarantee someone else does.

This horseman can be particularly dangerous because fees are generally hidden. Yes, banks, credit card companies, investment firms, and even retirement advisors/fiduciaries all have fees baked into their services you might not know about. They could be costing you tens of thousands of dollars (probably hundreds of thousands of dollars) over the life of your portfolio.

I’m sure you’ve heard the saying “It’s not what you make, it’s what you keep.” Yes, you can apply this saying to savings and investments, but also to fees. Fees snatch up money that could otherwise be put toward your financial freedom. And to illustrate just how detrimental fees can be, I want to show you an example using the fees that are arguably the most destructive: retirement fees.

Let’s assume that the person in this example is forty-four years old. They have twenty-three years until their retirement, and they are putting away $20,500 per year into their company 401(k) with zero match from their employer. They are getting an average of 7 percent growth per year on their portfolio, which is reasonable, since historically the S&P 500 has grown on average by that amount.

Now, this person pays 1.50 percent in investment fees—a combination of what they pay for stocks, bonds, and mutual funds, as well as what their 401(k) fiduciary charges for the management of their portfolio. This is quite a moderate estimate since the combined fee in the real world is often closer to 2 percent.

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