During the video, Jack Bogle, the founder of Vanguard and the inventor of the first low-cost index mutual fund, stated that over a lifetime many investors keep roughly one third (1/3) of their investment gains while Wall Street takes two thirds (2/3). As shocking as it may seem, I wanted to reiterate that Jack Bogle's figures are correct.
Take the following example that I calculated with my financial calculator. Say you are 24 years old and change jobs. You have $10,000 in your 401(k) plan that you roll over to an IRA at Vanguard and invest in low-cost index funds. Over the next 60 years your mix of mutual funds average 7% annualized returns. When you are 84 years old your account would be worth $579,464.
Instead, let's say you go to your local bank branch and give your money to their financial advisor. This advisor charges you a standard 1% annual fee and he invests your money in mutual funds that have expenses of 1% (or more). This is an extremely common scenario. Thus, you can expect to earn 5% on your money (instead of the 7% above) due to the higher expenses. After 60 years when you are 84 years old your account would be worth just $186,792 for a whopping difference of $392,672.
So Jack Bogle's figures are exactly correct. 186,792 / 579,464 = 32.2%
In a typical financial advisor scenario, you will give away 2/3 of your wealth to your financial advisor over the course of a lifetime.
$10,000 invested at 7% for 60 years turns into $579,464
$10,000 invested at 5% for 60 years turns into $186,792