AAAAAAAGGGHHHHHHHHHHH!!!!!!I’m Pissed!!!That was my mood on the night of August 27, 2020. In my portfolio of investments, I had a Rollover IRA from when I moved from New York to Washington state.At the time, I was in the process of taking over as the General Manager of my family’s Restoration franchise. I had been in Washington state for about a year and knew that I needed to do something with my 401K from my previous employer in New York.I had met a financial advisor in my business networking groupfrom the Edward Jones Franchised Investment Group. The year was 2009. He said that he could roll it over for me. The only thing he asked me was how aggressive I wanted to invest.I said aggressively because I was still in my early 30’s.That was all I really understood about investing was that I was young and should investaggressively. I also was only investing between 10-15% of my income before this happened, so I only had about$32,000 in all my retirement funds. I simply trusted him and did no homework of my own.
Fast forward 10+ years and I’ve finally started doing my homework. I started studying investing and realized that low fee index funds are the way to go.Also, I learnedthat “managing” your own investments is also the way to go. My wife and I compare hiring a typical“financial advisor” to paying someone to purchase your Amazon purchases online for you. Buying and trading stocks nowadays is so simple that it truly can be compared to purchasingalmostanything else online. But when you are ignorant of investingandhowthe stock market works, it’s easier to simply just hand the responsibility over to someone else. That’s what I did in 2009.
Now, on the night of August 27, 2020, I finally corneredmy wife and explainedthat Ihadthese mutual funds still in my portfolio that I had rolled over from the Financial Advisorinto Fidelity. I hadn’t initially realized that when it was rolled over it kept the same mutual funds that my old advisor had purchased for me. I later on realized this, but felt they seemed to be growing so there was no rush to sell them and move them over to index funds. Boy was I wrong! I had waited over 2 years to make a decision on these floatingmutualfunds. When my wife and I finallysat down and dug into the funds, we realized the following:
AIIEXcompared to my current S&P 500 Index Fund of FXAIX
-Expense Ratio
AIIEX =1.33% FXAIX= .015%
-FrontLoad Fees
AIIEX=5.5% FXAIX= 0%
-Fund Returns
-YTDAIIEX =.03% FXAIX= 7.48%
-1yrAIIEX =8.4% FXAIX =18.94%
-3yrAIIEX =4.44% FXAIX =13.6%
-5yrAIIEX =6.76% FXAIX =14.57%
-10yrAIIEX =6.28% FXAIX =14.33%
I can’t even begin to calculate the lost income from this “investment”.But I’m going to try.My financial advisorput me in a fundcharging me 1.33% each year weather my investments gained or lost money.The fundcharged me 5.5% on the front end when I originally rolled my 401K under his management. He never told me this 5.5% load feewas going to be charged. They never do. They never tell you that they also charge 1.33% annually as wellon topof the 5.5% fee.I don’t even know what my Edward Jones advisor was making off of me, these are just the fund fees.They put it in writing deep in the paperwork they hand you. At the time, I had no idea what a front load fee was, or an expense ratio.I was in these accounts for roughly 10 years. This means I paid5.5% + 13.3% (1.33%x10 years) to have my money underperform by 8.05% over that period. I’llcount that into the fee as well. If you are doing the math, it is 8.05% opportunity cost + 13.3% expense ratios + 5.5% front load fee for a grand total of26.85%.I understand that this number is not completely accurate due to compounding, but you get the idea. I believe my original investment was around $32,000 in 2009. It grew to$44,418in 10 years using my financial advisor. Just using the FXAIX10 yearreturn percentage, my money should have grown toaround$118,475with only$156in fees (using the nerd wallet calculator). During that same time, I paid roughly$6,797.73inexpense ratiofees. That doesn’t include the underperformance cost or the initial load fee($1,760).Had I kept my money in this fund for the next 20 years until I was 62 years old, the fees alone would haveamountedto $38,041.41.If I had $200,000 in this mutual fund, the fees would have amounted to$171,288.30over 20 years. When you are 65 years old and not earning money anymore, I can assure you, youwill miss that almost $200,000 in fees. A 1.33% fee may seem small, but over time it makes a huge difference in your final balance at retirement.
AIIEX (and othersimilarMutual Funds) vs. FXAIX 10 Year Return:
-Return:
AIIEX$44,418vs. FXAIX$118,475
-Fees
AIIEX$8,557.73vs. FXAIX$156.00
To summarize, Financial Advisors are out to make a living. A good living if they can. They are not in it for you.Most don’t even have to be an official “Fiduciary” over your money.To be honest, I feel that most are less knowledgeableabout investing than the average person who has read “The Simple Path to Wealth” by J.L. Collinsor “Little Book ofCommon-SenseInvesting” by Jack Bogle.Of course,there are good and bad advisors, but a majority really have no idea what they are doing. It’s easier for me to think that way than to think that they are intentionally tryingunderperform and over charge.Please take time TODAY to review the funds that your investments are in. Don’t stick your head in the sand like I did. Search out the fund and look at the expense ratio and the load fees. If they are not 0% or very close to 0% you need to make a move. Index Fundsare the best way to go. Check out index funds like VTSAX,VTI, FXAIX, FSKAX.
