003 | Let’s Talk About Fees | Why Investment Fees Are Evil and How to Avoid Them

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Learn how devastating Fees can be to you net worth and how to avoid them

  • How to invest your 401k?  Nobody knows!
  • Index funds and low cost ETFs are the way to go
  • Readings that changed our investing trajectory
  • Who outperforms the market?  Nobody.  Hold the course and buy the entire US market.
  • You aren’t going to find a brilliant financial advisor who can outperform the market
  • Running an investment scenario and seeing the impact of fees on a 40-year return
  • Scenario 1: $100k into VTSAX and letting it ride for 40 years = $2.13 million
  • Scenario 2: $100k into VTSAX but hiring an investment advisor.  40 years = $1.46 million
  • Scenario 3: $100k into actively managed fund + investment advisor. 40 years = $1.03 million
  • VTSAX isn’t the only option, but keep in mind that FEES MATTER!
  • This strategy allows us to sleep easy.
  • Buying “US” companies also gives you exposure to international markets
  • Warren Buffett’s advice to his trustee: Invest 90% of his estate in a “very low cost S&P 500 Index Fund (I suggest Vanguard).”

 

Links from the show:

Books Mentioned in the Show:

Tweetable Quotes:

  • Reading those articles (Stock Series by Jim Collins) changed the entire course of my investing life.
  • The likelihood of you finding that brilliant financial advisor is as close to zero as possible.
  • What we’re saying is, FEES MATTER.

 

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10 thoughts on “003 | Let’s Talk About Fees | Why Investment Fees Are Evil and How to Avoid Them”

  1. Hello again! I was wondering if you have any recommendations on investing into an account that doesn’t have a high minimum investment fee. After looking up the VTSAX I saw that it requires a minimum investment of $10,000. I’m looking for something that I can possibly deposit a small sum of money into monthly or even more frequently.. Is there anything out there that works this way?

  2. Hi Gertrud,
    I would recommend SWTSX through Charles Schwab. I am invested in it. It is similar to VTSAX and has a $100 minimum initial investment. The expense ratio is only .03%. Once you hit $10K you can transfer it over to VTSAX, if you prefer.

  3. Another option, that I am also invested in is VTI. It has the same makeup as VTSAX but it is an ETF. It trades differently than a mutual fund though so makes sure you understand the difference.

  4. The total market is not always going up. I was looking at this chart: http://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

    What if you entered the market in 1966 and you wanted to retire around 1982? You’d be screwed! You’d have to stay in the market 13 more years til 1995 for the market to even get back to where it was when you entered! Everyone is touting index funds but it seems that’s only because there has been a mostly great run-up since 1982. You can’t predict what the market will do. You can’t plan to retire on that money alone because you have no idea when it’s going to go way down and have to climb back up.

    Isn’t putting all your eggs in one basket really risky?

    • Actually that would be the best possible case scenario 🙂 or close to it because you enter at the top and buy as the market goes on sale and stays on sale for 20 years 🙂 then climbs right as you are exiting the market. Investing isn’t a one off transaction. The stockmarket is the only place where all the buyers run away in fear when it goes on sale . definitely listen to 19 & 19R and 34 & 34r for a more comprehensive look at the power of indexing 🙂

  5. As an investor and general FI person who got started with the Boglehead community, I really enjoyed this episode. I was nodding so much that I thought my head was going to fall off.

    I just found it a bit strange that you did not touch on front and back-end loads at all, and focused on expense ratios. The only explanations that I could come up with is that it would have made the podcast longer and perhaps you have covered that in a later episode (I’m kinda late to the party here), but I think that having a basic understanding of loads is also very important.

    Sadly, many people with 401k’s or 403b’s will not have lower cost options from Vanguard or Fidelity available, and some of those options will contain loads (more commonly known as commissions). Just a bit of a nitpick on my part, but I think it’s also an important concept that investors should be aware of because it will further lower returns by lowering the amount of money that is actually being invested.

    Great episode regardless. Everyone needs to know this stuff! Thanks for your work on improving peoples’ lives.

  6. You talk about using PersonalCapital.com – do you also recommend using their investment services? I have a Roth IRA and a traditional IRA with an advisory group. Should I switch over to Personal Capital? Or take my IRA’s and invest this money myself in VTSAX? Thanks for any insight.

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