Here's why. Over a long period of time, say 20 years, the stock market will likely average about 8% annual return (2-3% from dividends + 5-6% in capital gains). If you pay a
But, with these high fees, the power of compounding is working against you. So it is actually worse than 25%! Let me show you how.
If you invest $100,000 at 6%, after 20 years you might have $320,000 - or a gain of $220,000. Sounds good right? But, if you invest $100,000 at 8%, after 20 years you might have $466,000 - or a gain of $366,000.
You could have gains of $366,000 if you bought index funds, but since you paid that
To think about it another way, you could have increased your investment returns by +66% if you bought index funds rather than listening to your bank's
If you are fortunate enough to have $500,000 to invest, just multiply the above numbers by 5. After 20 years you would amass $2.3 million with an 8% return, but just $1.6 million at 6% annual return. That's right, you would be out a whopping $730,000 over 20 years (146 x 5 = 730). You likely paid for your investment advisors house - instead of your own!
I think these numbers speak, no SHOUT - very loudly why I believe everyone should learn do it yourself investing using Vanguard index mutual funds. Even if you think you might make a mistake or two doing it yourself, there is no question you will come out ahead. One of the worst things you can do with your money is give it to your local bank investment advisor and pay him 1% per year to put you in mutual funds with 1% expense ratios.