To demonstrate the true impact that fees can have on a portfolio I am going to show an example, I'll assume: Starting portfolio: $500,000 Gross annual return: 7% Period: 30 years Contributions/withdrawals: none Portfolio 1: Advisory + fund fees: 1.5% total (1% + 0.5%) Portfolio 2: Low-cost index fund expense ratio: 0.05% As you can see, after 30 years the portfolio with lower fees is worth over $1,261,000 more. This showcases the true damage that high fees can have on the compounding of wealth over long periods of time. However, this doesn't automatically mean a 1% advisory fee is unjustified. The relevant question is whether the value of the advice exceeds its cost. *Do not use anything from this analysis as financial advice.
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4 Comments
Josue J@hashbrown50_05 · 15d
This is true, but you must also take into account the damage that taxes do on someones portfolio over the long term as well, good advisors will make up this value in other important parts of the retirement journey that they should show you. Setting up a talk with an advisor doesn’t cost any money & they can show you what value they provide.
Alexander
@jcw_mayyy · 15d
Question, would a mutual fund fee be worth it if your 5yr return was double digits maybe even as high as 20% compared to an ETF with a more balanced return at a 9%?
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