The Personal Finance Podcast - The Impact Of Investment Fees (and Why You Should Never Touch Your 401(K)!)

Episode Date: March 22, 2023

In this episode of The Personal Finance Podcast, Andrew talks about the impact of investment fees and why you should never touch your 401k unless you're retired of course. How Andrew Can Help You:  Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel!  Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/ Thanks to Ka’Chava For Sponsoring the show! Go to kachava.com/pfp and get 10% off on your first order.  Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at shopify.com/pfp Policygenius: This is where I got my term life insurance. Policygenius is made so easy. To get your term policy go to policygenius.com and make sure your loved ones are safe. Healthy Cell: The best way to get your vitamins and nutrients based on your goals. I take one pouch every day to perform my best mentally and feel better physically. Go to Healthycell.com and use promo code PFP for 20% off your first order! Get all the nutrients your body needs today!  Links Mentioned in This Episode:  Shred Method: https://www.thepersonalfinancepodcast.com/how-to-accelerate-paying-down-debt-the-shred-method-with-adam-carroll/ Trust and Will https://bit.ly/3BHDfu0 Y Charts https://ycharts.com/?utm_source=Giancola Empower (PC) https://fxo.co/FBdJ Here are the Episodes mentioned in this show:  How to ACCELERATE Paying Down Debt (The Shred Method) with Adam Carroll Should You Hire a Financial Advisor? (Plus The Major Impact of Fees!)  Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

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Hey fruit flies Your baby boom ends here Save the Everyday with Amazon On this episode of the personal finance podcast, we're going to talk about the impact of investment fees and why you should never touch your 401k unless you're retired, of course. What's up, everybody, and welcome to the personal finance podcast. I'm your host, Andrew founder of mastermoney.com. And today on the personal finance podcast, we're going to be going through a money Q&A of a bunch of your questions. We're going to be talking about the impact of investment fees and why? you should never touch your 401k.

If you guys have any questions, make sure you hit us up on Instagram or TikTok at MasterMoney Co. And follow us on Spotify, Apple Podcasts, or whatever podcast player, you are listening to this podcast on right now. And if you want to help out the show, leave that five-star rating and review on Apple Podcasts or Spotify. I cannot thank you guys enough for leaving those five-star rating and reviews. I really, truly appreciate it.

Now, today, we have a money Q&A, and we're going to go through four of your different questions that you sent in via email or on Instagram. And the first one is we're going to be talking through the impact of investment fees and the impact if you have an advisor taking a percentage of her portfolio every single year. Secondly, we're going to be talking about what happens if you withdraw any amount of money from your 401k or your Roth IRA for anything else to buy a house or to bail you out from some situation. And what that major impact is. And you don't want to miss this because it is hundreds of thousands of dollars if you just take out a small amount of money. Number three is we're going to be talking about how do you actually will down your HSA or what happens to your HSA when you pass away. And then number four, we're going to be talking about how to pay down your mortgage fast.

And we're going to talk about the difference between making extra payments or principal only payments and how powerful this can be if your goal is to pay down your mortgage. So we are action-packed today on money Q&A. really excited to share this with you. So without further do, let's get into it. All right, so this one is from Instagram. So can you do a podcast for making extra payments versus paying down towards principle? So what this is talking about is this person specifically is looking to accelerate their mortgage pay down. And there's a couple of different ways that you can do this. One way is that you can make extra payments. And we'll talk about the implications of that. But at the same time, you can also pay down towards your mortgage principle. So

Normally when you make a payment on a loan, the lender applies part of your payment to the interest and then part of the payment to the principal. So you can notice when you buy a brand new house, it looks like you're paying most of your mortgage down towards the interest. And it's a very frustrating thing. Well, lenders are smart about this. The reason why they do this is because the average person leaves their house within seven years. So they want to collect their interest up front. So they front load the interest on your loan so that you have to pay that interest up front. And then as you progress down the line, then you're paying more.

and more towards principle. This is a very important distinction to understand. So a quick example, let's say you have $10,000 at a 6% interest rate and you have a payment of $11, then $61 potentially would be going towards principal and $50 towards interest. But as you buy a brand new house, for example, that difference is going to be way more front-loaded towards interest than it would be that principle. Now, every time you make a payment, it's going to split down to whatever the amortization schedule states that it should. But if you make extra payments, you can also make those extra payments to principle only, meaning you're actually paying that mortgage down and reducing that mortgage so that you can actually put more value into your house if this is what your

goal is. Now, for me, for example, right now, I have an interest rate of 2.7% on my mortgage. I'm not paying that thing down anytime soon whatsoever because that is money where I would rather allocate those dollars towards investments. But if you are someone who does not like debt. You don't want your mortgage payment anymore. You want to get rid of it. You're getting closer to retirement, which is when I would advocate to definitely be looking at doing that. So you reduce your mortgage payment. Get rid of it. So you don't have that extra liability sitting there. Then that would be a time that I would consider looking at doing something like this as well. Now, how do you make a principal-only payment? Because I like principal-only payments. I think they really help you bring that mortgage value down.

One way you can look at it is there is a system that we talked about with Adam Carroll. And he has a system called the shred method. If you haven't read that episode, we'll link it up down below where he uses a helot to do this. But the way to do this in a traditional sense is you can call up your lender and see how you can make this principle only payment. Now, some lenders do not allow you to do this. And if they don't allow you to do this, then you can't do it or you have to refinance somewhere else.

If you have a low interest rate right now, I wouldn't refinance whatsoever. But if you have a high interest rate, then maybe it's something that you can consider as you do this. Now, a lot of times what you're going to have to do is you're going to have to contact that lender and ask what is the process to make this principal only payment. You're going to walk through that steps. Then when you have those steps, then when you have those steps, you're going to steps in play, then you want to automate this process because if you're going to continue to

make these automatic payments, you want to automate this process so you don't have to manually do it every single time. Instead, you can have all of this automated. We are very pro automation on this podcast. We are working on a guide and some courses to teach you exactly step by step how to automate all your money so you don't have to think about your money anymore. And so we are very pro automation. So you definitely want to make sure that you automate those extra mortgage payments. Now, one thing you want to note as you do this, this is you want to watch out for prepayment penalties. If your mortgage provider has prepayment penalties, that is one of the scummiest things that I think they can do. That means

they have their best interests at heart instead of yours, which most do anyway. But that is one of the worst situations that you can be in because they don't want you to prepay your mortgage because they want to collect that interest. And so they have penalties if you do that. And so if they have those fees, if those fees are really high, then I would consider that they just aren't allowing you to do this prepayment thing. And maybe you want to consider refinancing if they're, the interest rate is very comparable or exactly the same. Now, how do principal-only payments reduce your debt faster? So I'm going to give you an example of a car loan because we ran the numbers on this for a $15,000 car loan that, say, for example, has a four-year term of 5% interest. So if you go through,

you can expect to pay $1,581.12 in interest if you keep those regular payments until the loan pays off. But if you make that extra payment of $150 per month, you could save $315, $6,000 in $16,000,000, cents just by doing that. Now, this may not seem like a big difference, but if you have a mortgage where it's a larger balance, this is a much more dramatic difference as time goes on. And in that episode with Adam Care, we talked about you could save up to six figures on interest payments just by doing something like this. Now, another thing a lot of people like to do is biweekly payments. So if you haven't heard about this before, this is why we talk about the three paycheck months is they make biweekly payments, meaning that they are making payments on their mortgage biweekly. And what happens when

you do this is that over time, you're going to make 26 payments per year instead of 24. So you save an additional one month on your mortgage and you can knock off an extra month by making those biweekly payments. But when you make biweekly payments, most people may not realize this. When you do that, you're actually making the payment on the principal and interest. If you do that, you want to see if there's a way that you can actually reduce your principal instead of just doing it on principle and interest. But if you want to reduce the timeline of your mortgage, you want to reduce, you can reduce it by five, six, seven years just by making those bi-weekly payments. And here's the impact of those extra mortgage payments.

So say, for example, someone has a $200,000 mortgage at a 6.5% interest rate. And the principal is $1,264. Here's what happens if you actually make extra payments. So if you make the minimum every single month over a 30-year mortgage, you're going to pay $255,089 in interest on that mortgage. If you make 13 payments a year, which is the biweekly payments, your payoff would reduce down to 24 years and one month. So that's how powerful it is if you make those biweekly payments or if you just make 13 payments a year. Maybe you just do an extra payment when you get your tax return, for example.

You can reduce that mortgage down by six years. So this is a cool example. If you plan on retiring, say, in 25 years, you've mapped it out. You've done the 4% rule and you think you'll be able to retire in 25 years. Then you can do this 13 payments a year system. that you are mortgage free by the time you hit retirement age. If you do an extra $100 every single month in this scenario on this $200 mortgage, then it would take 24 years and five months. So that may be a better way for somebody where you can do the math on this and say, hey, an extra $100,

$150, $200 a month, and I can reduce my mortgage down to 24 years and five months. If you make an extra $50 payment a month, 26 years and 10 months, and an extra $25, just an extra $25 is going to reduce in almost two years to 28 years and three months. And your interest payment, goes significantly down. And one thing to note is on those 13 payments a year, you're going to save $60,364 in interest. On the $100 extra every single month, you would save $55,946 in interest. $50 extra every single month would be $31,959 in interest and $25 a month would reduce that interest down $17,232. So just an extra $25 a month, you save $17,232 in interest over the course of time from. So it really is worth making some extra payments, especially if you have a little extra

cash, you don't know what to do with it. Making those extra payments on your mortgage, if you have an interest rate like this one, which is a 6.5% interest rate in our example here, that you really want to make sure that you can get that reduced down, especially if you have those high interest rates. It's really going to save you a lot of money. So that is one way that you can do that. If you have any interest rate above 5%, I would definitely look at making sure that I can do that. So those are the two primary strategies is either biweekly mortgage payments or extra monthly payments towards principal. I like extra mortgage payments towards principal because it's actually reducing your principal down. You're going to save a lot more money in interest that way. And so when you can make

those principal only payments, it's really, really powerful. And really, if your goal is to pay your mortgage down, thinking about some of these things and running the numbers to see how it fits in for your life and your lifestyle is really, really important, especially as you approach retirement age. I don't want a mortgage when I'm in retirement. I don't want to have to worry about that payment. You already have to worry about your taxes, everything else, your insurance. So making sure that you can get rid of that extra payment, just so you have more security in retirement is a very powerful thing that you should be able to do as you get to that point. Especially if you want to do Coastfire or anything else like that, you don't want your retirement taken away from you where you have

to go back to work. So making sure you have that extra protection there is a very powerful thing. Now, you don't have to do that. You can absolutely have a mortgage in retirement, but it's just an extra safety net that you can have available to you, especially if you plan it out years in advance like we're talking about here. All right, the next one. So I'm a little confused about this and hoping you can help. What happens to your HSA after you pass away? So an HSA, we're going to go through exactly what happens when you pass away. But if you don't know what an HSA is, it's a health savings account is what stands for. And it's actually one of the best retirement hacks that are out there. So an HSA has triple tax benefits, meaning you put money in tax free, the money grows tax free, and you can pull the money

out tax-free with a qualified medical expense. Now, as time goes on, people worry about, well, I have this HSA and I don't have enough qualified medical expenses, whereas you probably will, because a lot of folks as they age when they get to their 70s, 80s, and 90s statistics show that almost 50% of their expenses go towards medical costs. So this is something will rise over time. But if you don't use your HSA and you get to a point where you're like, I just don't have enough expenses there, then it just turns into a traditional IRA. So it's a very easy account to transition over and in addition it is one that has those triple tax benefits that you could take advantage of for the time being and then if you don't want to use it anymore you'd always just turn it

into a traditional IRA. Now what happens to your HSA when you pass away is actually very different than something like an IRA because if you pass away there are no such thing as inherited HSAs where if you pass away there are things like inherited IRAs where you just roll it over to another person well that does not exist with an HSA. Now one thing to note about an HSA is that if you have a surviving spouse, then what's going to happen is one of two things. Either the HSA can become your spouse's HSA if you designate them as a beneficiary. That is why it is incredibly important to designate your spouse as the beneficiary when you're setting up your HSA. So it will go to your spouse as the beneficiary. But if your spouse has an HSA as well, then you can also roll that HSA into

their HSA and have that available there. Now, if it's not your surviving spouse, if it is anyone else, either your kids, a grandkids, nephew, niece, whatever it is, then they are going to have a different system come into play because there's no inherited HSAs. So they cannot roll it into their HSA. What they have to do if you designate them as a beneficiary is then it becomes a taxable brokerage account. Now, the downside to this is when they inherit this and it becomes a taxable brokerage account, then they pay taxes on the money. So this is one thing to note as a user HSA is when you get to retirement age, I would try to use up my HSA for. my living expenses. And then if there's things that you want to make sure that you go to your

children or your grandchildren or whatever else you want to do, then you have some other different accounts that would go there that are more tax efficient because of this reason. Now, if your HSA is your primary retirement vehicle, and for some people it is because you can contribute up a little over $7,000 into that HSA, if you have a family plan, then maybe that is something where you just, you know, bake in the cost of this that it's going to be going into a brokerage account. They're going to pay taxes on that. Just make sure you have. all that stuff in your trust or your will. But this is part of why it is really important to do estate planning so you understand little things like this. I did my will at a place called trust and

will. We'll link it up down below. It is a really easy place to do a will and a really easy place to a trust as well if you don't want to go through all the legal fees and other things that you have to do when you go through an attorney. But then in addition also, it's worth talking to someone about some of this estate stuff as you get to the point where your wealth really starts to grow because wealthy people know what to do with their estates. They know how to give their money. And it's very important that you understand this because you can save hundreds of thousands of dollars depending on how much money you have if you make the right moves with doing this. And an HSA is a great example of that because the folks that potentially could be inheriting it could have a major tax bill if you have a

very large HSA. So just make sure you consider that when you go through the process. But if it's going to your spouse and you have a surviving spouse and they can absorb that HSA, but anybody else that you give it to cannot absorb that HSA. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy, clothes don't fit anymore, and routines are changing. And it just hits you. Life is expanding. And when your life grows, your responsibility grows with it. That's something I've been thinking about more this spring, making sure the safety net we have in place actually matches the life that we're building. And that's where PolicyGenius comes in. PolicyGenius is an insurance company. They're an online market.

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clarity you need with plans that harmonize your business, your family, and your dreams. Get financial advice that puts you at the center. Find your advisor at IGPrivatewealth.com. What are the implications of withdrawing my 401K for a down payment on a house? Now, I cannot stress this enough that this can be one of the most irresponsible things that you can possibly do, yet too many Americans actually withdraw from their 401k. for things like a down payment on a house or maybe they need a new car

or they steal from their 401k or their IRA or their Roth IRA to do just this. But what I want to go through here is the math of this decision and what is actually happening here because what you're actually doing, if you do this for a down payment on a house

and way worse if you do this for like a car or a boat which is a depreciating asset, but if you do this for a down payment on a house, what you're doing is trading a good asset, especially if you're investing in something like index funds and ETFs, for a historically poor asset, which is your personal residence. Now, real estate is obviously amazing if you're investing in real estate because you get to

utilize a bunch of different things, including your tenant is paying your mortgage. It is leveraging a lot of those costs. But when it comes to your personal residence, it is a subpar asset at best. And we've run the numbers on this when you look at the episode called Buy versus Rent. And we kind of go through all this. I can do an individual episode if you want me to do this where you do total cost of ownership, TOC and figure out how much it actually costs for you to buy a house, and you'll figure out it is a subpar investment at best. Historically, homes across the country have returned 4%. Now, this is location

dependent. I understand that. But at the same time, you have to know that this is not a good asset to be buying. So you're taking money out of a good asset, a tax efficient asset, and then putting into an asset that has subpar returns historically. That's the first thing to understand. The second thing is the actual implication of taking this money out. So your boy ran a couple of numbers. We did a little math here to see exactly what the implication would be and these numbers are astounding. Now, I want you to remember these for the future anytime you think about taking money out of your 401k. Do not interrupt compound interest unnecessarily. That's the number one thing we talk about all the time. You take money out of your 401k. You are interrupting the amazing power

of compound interest. And we never, ever, ever want to do that. And you're going to see exactly why here. So let's just say you took out one year of Roth IRA maxes to be able to do whatever you want to do with that cash, whatever thing you want to do with money outside of buying another asset. Let's say you take it out of your Roth IRA or your 401k. $6,500 at an 8% rate of return over the course of 30 years, you are now foregoing $65,407. You are literally robbing yourself of $65,407 just for $6,500, but it gets worse. Let's say you take $10,000 out because you want to put towards the down payment. Well, if you take $10,000 out over the course of 30 years, you would have $100,626.

You'd have six figures of net worth that you're removing from your life by taking $10,000 out of your 401k. This is a huge massive mistake. Let's go higher. $15,000. If you took $15,000 out of your 401k for a down payment over the course of 30 years at an 8% rate of return, that would cost you $150,939. Let's say you took $20,000.

And $20,000 is not an entire down payment, as we know. If you're going to put 20% down on the house, it's not even an entire down payment for most areas at this point in time at the time I'm recording this. $20,000. Over the course of 30 years, $201,253. Now imagine if you got a 10% rate of return. You're losing on even more dollars because of this. Now let's go to $30,000.

At $30,000 over the course of 30 years at an 8% rate of return, $301,879. So say, for example, you've been saving your 401K for the last couple of years. Maybe you max it out one year. Maybe you didn't. You just put $5,000, $15,000 per year into that 401k. And all of a sudden, you get to the point where you have $30,000 in that 401k. But that brand new house rolls around. It has everything that you want.

It's got the wraparound porch. it's got a big backyard for your kids to play in. It's got the brand new swimming pool. It's got the man cave or the she shed or whatever else you want outside. And you want to pull $30,000 out of your 401k to be able to purchase that house. Well, if you do that, if you make that decision, you are foregoing $301,000 of net worth when you retire. This has massive implications of interrupting compound interest. And if you take it out of that account,

It can truly be a detriment on your money. In addition, when you take it out of a 401K, you also have to pay taxes on that money. And if you are removing it from a 401k early, you're going to also have to pay a 10% penalty. So it's an even greater implication to what you are doing with your money where your $30,000 will be taxed,

and you'll have a 10% penalty. So immediately, you're going to lose $3,000 in that 30, and then you're going to be taxed on that money as well. So this is a major problem to do this. Now, in a Roth IRA, your contributions can be withdrawn, your contributions, not the growth of your money, but your contributions can be withdrawn penalty free. And you've already paid taxes on that money, so you don't have to pay taxes on that money.

But when it comes to your 401K, and I almost don't even want to tell you that because I don't want people interrupting compound interest unnecessarily. But when it comes to your 401K, that is money where it is going to dwindle down because of the taxes and the 10% penalty just for a subpar asset at best. And the implications at $30,000, as you can see, $300,000. So I encourage you not to do this in almost every single scenario unless it's a complete emergency where you're facing bankruptcy or you have obviously if you have a medical emergency or something along those lines and you don't have the funds to cover it fine but if this is for something that you want not something that you need then this is a major problem for your future wealth building journey all right so the next one

is i've been talking to advisors and interviewing various advisors they all seem to have a great plan in place but how do investment fees actually impact your portfolio especially when it comes to financial advisors. So this is a fantastic question. And we have an episode where we kind of break down the crazy impact of fees and how fees can absolutely destroy your wealth building ability. But never fear because your boy has some new data that I'm going to share with you here along with this question as well because this is a very important thing to understand. A lot of people are trying to evaluate should I use a financial advisor or should I just self-manage my finances? Now, financial advisors are absolutely an investment.

There are situations where you can have a certified financial planner put together an amazing plan for you. And absolutely, I advocate for that. But I advocate for it when you are utilizing it as an hourly wage. Now, there's two business models for advisors. There are advisors that take a percentage to manage your investments. That's the one I don't like. And then there are advisors who will work hourly for you. And this hourly rate is going to be high.

It's always high to have financial advice with financial advisors. and I'm talking three to five, $600 an hour, depending on who you're talking to, but that is significantly less than them actually taking a percentage of your portfolio. This is really important to understand here. You may pay $5,000, $6,000 for an advisor to talk to them at an hourly rate, but at the same time, that is going to be way, way less than having this fee structure in place. Because let me show you the impact of fees if you have them in your investment portfolio.

Because it's really important to understand this. When you're looking for advisors, I would look for a certified financial planner. That's the top level of advisors, and that's what I would look for to start off and have them put together a financial plan for you if you need an advisor. Now, does everybody need an advisor? No, everybody does not need an advisor. You can definitely self-manage, but advisors are an investment that can help you, especially when you get to a certain wealth level. Sometimes they can help you see other things when it comes to your tax benefits. Advisors are very good at saving you taxes when you find the right advisor to do so.

And that is one of the best investments that you can have. You're a tax advisor. So an accountant can do this where you can have an accountant who is a tax strategist or an advisor can do this and help you save money on taxes based on your specific situation. This is what's important. Your situation is very specific as to what you should be doing. So I personally use as tax strategist. My tax strategist is amazing for my personal financial situation.

But you can use an advisor to do the same thing and put together a tax plan. There's some amazing advisors out there. But there's also a lot of advisors who are not. not amazing. So I got to show you how to learn how to evaluate these fees so you don't pay too much. And I'm going to show you the crazy impact of these fees as we go through this here. So let me give you an example of how advisor fees would be broken down. So the first one, if you had an advisor who was taking a percentage of your investments, they'd have a sales load feed, meaning 0.25%, somewhere in that range, would be a fee just for buying your investments.

Then they'd have a redemption fee, which is 0.25%, which would be to sell your securities if you ever want to sell securities. Then they have a fund expense ratio. This is the mutual funds that they put you in. This would be 0.50%. Now, this is just an example, but this is how they set these up. And then they have the management fee of 1%. Now, this would be a 2% fee in total on your investments. This is a massive fee. I need you to understand this. A 2% fee is massive. It doesn't sound like it's a lot, but I'm going to show you why it's a lot in a second. Even a 1% fee is massive. in comparison to being able to go out and find a robo advisor, or you can go out and just invest in index funds and construct your own portfolio itself. This is why we created Index Fund Pro

for $99, because if you have $99 available to you, you can learn how to construct your own portfolio based on your risk tolerance and a bunch of other factors. So let's say, for example, that you contribute $10,000 per year over the course of 40 years and you got an 8% rate of return, here's how much 2% fees would impact you. 1.1 million dollars is how much in fees you would pay over the course of that 40 years just by investing those dollars. Now, this is where the real power comes in. This is what you really, really need to understand. And if you haven't heard our episode where we talk about fees, we have way more information like this in that episode. We will link it up down below in the show notes so that you can check that out because it's really

important to understand this stuff. But I'm going to lay out for you, fees paid, and how much this would reduce the future value of your investment, meaning that if you paid any fee whatsoever, how much would that reduce your investment in the future if you didn't pay that fee? Now, paying 0% fees is almost unrealistic. Fidelity has 0% index funds. We talk about those in index fund pro. We talk about them on the master money YouTube channel, but Fidelity does have zero percent fees. They don't have a long history of track record. FZR OX would be one example of that. And they do have these 0% fees, but really 0% across your entire portfolio is somewhat unrealistic right now. Now, fees are being reduced for the average investor like you and I,

and this is a good thing for us because we don't have to give away more of our earnings to someone else. Instead, we can keep those earnings and allow them to compound over time. But this is the reduction in future value, because if you look at this, you're losing your value that you've contributed, you're losing the value of compound interest, all of these different things. If you paid a 0.03%, which is very common for an index fund or ETF, for example, VTI, Vanguard's total stock market, index ETF has a 0.03% expense ratio. Then your reduction in future value would be 1%. This is a really low fee.

And so 0.03% reduces your future value by 1%. I want you to wrap your brain around this. So that would be an example of an index fund. Let's say you've got a robo advisor though. So a robo advisor would be something like betterment or wealth front or vanguard advisors or Fidelity has advisors now. 0.25%, which is still a very low expense ratio. If you don't want to have to manage your own money and you want somebody else to

do it, you want to use artificial intelligence or some other things to be able to do this. This is a fantastic way to do it at a low cost rate. So 0.25% from a robo advisor reduces your portfolio value, the future value of your portfolio, by 9.5%. That's just 0.25%. So imagine what 2% is going to be when we get there. 0.50%. This is something like an actively managed mutual fund will charge something like 0.5%. If you're self-employed, maybe you understand this to you, like For example, my Roth 401K, there's no way around this. I have to pay fees if I want to have a 401K, if you have businesses and you are self-employed.

So sometimes you have to pay that fee. Sometimes there's no way around this. But the reduction in future value of 0.5% is 18% if you pay a 0.5% or 50 basis points. And this is similar to like an actively managed mutual fund. 0.75%. Maybe you have a 401k option in your company's 401k where you have mutual funds and you're paying 0.75% or maybe you're paying that in something

or maybe you invest in mutual funds and you're paying that in mutual funds. This reduces your portfolio's future value by 26%, just 75 basis points. 0.75% reduces your portfolio by more than 25%. 26% to be exact. That is absolutely amazing. So let's see if there's a 1% fee.

If there's a 1% fee, this would be traditional for like a financial advisor. If you have a mutual fund that has a 1% fee, you need to reconsider that because it's a massive differential there. So a 1% fee would be something like a financial advisor has 33% reduction in future value of your portfolio. This is massive stuff we're talking about here. And this is why investment fees are a six-figure to seven-figure decision by taking on something

like this. Then we have 1.50% when it comes to your investment fees. that'd be like a financial advisor as well. And a lot of financial advisors, you got to see how they stack these fees up. Because if you have an advisor who is stacking fees or hiding fees where you can't see them plain and simple, you need to understand this before you get started. So you need to understand every single fee, the little fees, the big fees, you need to have them explain all of it and then read through it.

You can trust them, but you need to verify it yourself as well. So 1.50% would be a 45% reduction in future value of your portfolio. And then a 2% fee would be a 55% reduction in future value of your portfolio. Over half of your hard-earned dollars that you worked for would be completely gone because you had a 2% fee paying a financial advisor who is probably investing in things you would already invest in. I've talked to a number of financial advisors before and I say, hey, what are some of the things that you invest in that would maybe be a little different than what most people

would invest in? They say, oh, we're investing in blue chip stocks. guess what has blue chip stocks in it. The S&P 500 is all blue chip stocks. Or you asked them, hey, we just buy companies that have a really long track record. Guess who else does that? Index funds do that for a 0.03% fee.

So if they say things like that, then it's not really going to help you. But if they can help you put together a financial plan, a plan in place that's going to help you save on taxes, it's going to help you put in place an amazing trust. It's going to help you make some moves that you wouldn't be able to make on your own. That money is worth it.

and that is an investment. But if they're just taking your money and they're investing it in things, you would already invest in it if you just bought an S&P 500 index fund, that's a problem where you're losing 55% of the value if you would have just done it on your own or use the Robo Advisor.

So making sure you see the difference there. I want you to think through the difference on what that means for you and your portfolio as you make this decision because this decision should not be taken lightly. This is one of the most important decisions you can make in your financial life because if you make a mistake on this,

you can lose half of your portfolio. value. Say, for example, you could have had $3 million by the time you reach retirement. You're only have 1.5, actually less than that if you pay a 2% fee. This is a million dollar decision. Do not take this lightly. Do not take your homework lightly. You should be spending hours and hours and hours on this because it's a million dollar decision. You should be spending more than a 40-hour work week to make sure you're making the right decision. Way the pros and cons on this because it's not something you should take lightly. Now, how do you identify fees? There's a couple of ways that you can look at fees.

Number one is I like Morningstar. Morningstar has a pretty cool tool where you can see investment fees. I also use Y charts. Whitecharts is a more pro tool that you can use. And Y charts, we will link it up down below

so you can check it out as well. That's where I get all my data when I'm talking through some of this stuff is Y charts. And then number two is Empower, which used to be personal capital. So personal capital changed its name. It got bought out by Empower,

and now it's called Empower, but they have a fee analyzer tool. So when you link up all of your accounts inside a personal capital, and this is where I track my net worth also. But when you link all your accounts inside a personal capital, which is now in power, so when you link them up inside of in power,

I'm still getting used to saying that name, then what you have to do is it will actually evaluate all your fees for you and tell you, hey, what are your fees across all of your portfolio? So you can see actually how much you're paying every single month in fees. And then you can plug those numbers in and see what the future value would be of that portfolio as well.

So that's another cool way to look at that. And there's a bunch of other investment fee calculators out there, but just making sure you pick the right one. Morningstar is a very credible source when it comes to mutual funds, index funds, ETFs so that you can see the fee and all sorts of other investment data that you want to look at. So this is very, very important to evaluate what you are doing when you look at financial advisors because you do not want to make a mistake on this. You can see why, because this is hundreds of thousands, if not millions of dollars at stake if you don't do your homework.