Financial Independence Daily FI discussion thread - November 07, 2020 |
| Daily FI discussion thread - November 07, 2020 Posted: 07 Nov 2020 12:08 AM PST Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. [link] [comments]  |
| Posted: 07 Nov 2020 02:23 PM PST A lot of people on the FIRE path (or otherwise) don't fully appreciate the effect of fees on their portfolio. The fees you pay do not compound with the rest of your investments and so the lifetime impact of fees can be stunning. Here are some scenarios: Assume I have $1m invested. At 0.03% annual fee, I would be paying $300/year in fees. I am 40, and by age 65 my $1m investment has grown to a large value of $10m (assuming the historical long-term average of 10% returns). If it weren't for this fee, my ending account value would be $85,000 higher! What happens if I pay 0.25% or 1% fee (some robo or wealth advisors charge in that range, excluding index fees). That $85k figure becomes almost $700k (at 0.25%), or $1.3M (at 0.5% fee) or $2.5M (at 1% fee)! This was stunning to me when I calculated it out. Our brain thinks...oh it is only 0.3% or 0.5% or 0.75%...but the $ value is astronomical over a lifetime of investing and for little to no extra value, at least for me. I manage my investments, takes hardly any time at all. I tax-loss harvest myself...took me 30 minutes total over the month of April this year when stock indices dropped. Very simple, and gives me comfort knowing exactly where my hard earned money is invested. Just a few broad indices is all one needs. Now I won't tell you what to do. I just wanted to highlight the math to spread awareness of the "compounding" losses due to fees. Lots of well-meaning and hardworking financial advisors out there that need to make a living, and they can help more at an emotional level than anything else. Know the impact and decide for yourself what fee % is worth it for you. For me, the average fee over my whole portfolio is close to 0.03%, and I intend to bring it down further over time. Tip: when looking for indexes to invest in, look for the "gross expense ratio". A few high quality broad indexes of US stocks have expense ratios similar to 0.03% (e.g. Vanguard VTI or Schwab SCHB). If you are paying 0.06% for an S&P like fund (or broad US), know that you are needlessly paying twice for essentially the same product. [link] [comments]  |
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