Investing – Minimizing Fees
After reading our page on “about investing“, you understand the importance of having enough money to live off for a very long time, much longer than you previously believed. Investing for the long term can help set you up for success well into your life if you understand certain principles. One of the most important things to understand when it comes to investing is minimizing the fees you’re paying on your investments. To give you an example, if you pay 2.5% in fees on your investments, it would take you ten more years to reach the same level of profits than it would have if you were only paying .5% of fees. I don’t know about you but I’d much rather shave 10 years off of my investing life to reach the same amount of profits! What’s even crazier is that if you were only paying .5% of fees on your investments, you would have about 33% more money than if you were paying 2.5% in fees. If you take that 33% than compound it by 10 years, you will be making 300% more money on your investments! These are huge numbers! So how do we cut down on the amount of fees we pay and start reaching our financial and retirement goals at light speed?
If you’re not familiar with index funds, it’s time to start learning about them.
Fun Fact: 96% of mutual funds will under perform the S&P 500 over the next 10 years.
Do you have a mutual fund? Do you have many of them? Do you know what you’re paying in fees on those mutual funds? The average mutual fund charges 2.7% in fees. You’re probably thinking this sounds extremely high and your financial adviser told you that you’re paying much less, but if you read the fine print, you’ll see there’s about 20 hidden fee’s in that contract you signed to buy the mutual funds. Mutual funds are extremely popular because of the companies marketing them. They wrap these pieces of crap into a nice package, sell them to you, make tons of money off of the “management fees”, than tell you to buy one of the new “better rated” and “four star” mutual funds. This is a non-stop cycle and if you have a market analyzer look at the stock market over the past 10 years, you’ll find out that 96% of the funds under performed.
Instead of buying these expensive and terrible performing mutual funds, buy an index fund. An index fund is similar to a mutual fund but you own stock in every company on the S&P 500 or whatever market you buy them from. This helps reduce risk because if one company goes down but another one goes up, you’re still in the game! The market wins more often than not and if you would have owned the S&P 500 index fund over the last 10 years, you would be down because of the 2008 crash but you wouldn’t be down as much as you would have been if you owned mutual funds. You pay fee’s on mutual funds whether the fund makes money or loses money… You also pay fees on index funds no matter if it makes money or doesn’t, but if you find a good index fund you’ll only be paying beween .2 & 1% in fees which makes a huge difference! You can check some websites online to see how much you’re actually paying in fee’s for your mutual fund… I strongly encourage you to check it out because I know you will be very surprised at the results! Hope this has been extremely informative!