You’re Making Your Financial Adviser Rich

So if you have $100,000 invested with a wealth manager, and he charges a 1 percent management fee, then this year you will pay him $1,000, and he’ll invest the other $99,000.

This is easy to understand when it’s just one year. And $1,000 sounds pretty reasonable. But when you keep your money with the same manager year after year, the fees add up. And it’s that part that I suspect investors are very bad at comprehending. Every year, the fee gets charged again. It’s like a little slice is lopped off of your net worth, year after year, whether your investments go up or down. That $1,000 is only the slice in the first year. Whether your wealth grows or shrinks, another 1 percent slice is going to be lopped off of your entire net worth the next year. Slice, slice, slice. Those slices add up, big time.

source: Bloomberg

While most people who read Dollar Bits understand that index funds — inexpensive, broad-based investment vehicles — are the way to go for most people, there are still those who rely on the advice of experts. You may be paying dearly for this advice. Remember, 90% of fund managers under-perform the market. Why pay more for inferior results?

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