Personal Finance Blog for Retirement and Investment Advice

Mutual Fund Fees are Silent but Deadly Wealth Killers

How would you feel if you discovered that every time you put $10,000 into your retirement account, $4,000 or more of it ended up going to pay fees over the next 20 years? And another ten years later, nearly $8,000 of your initial investment had vanished into other people’s pockets?High Fees

I’m guessing you wouldn’t be a very happy camper. In fact, you’d probably be mad as heck.

I hate to be the bearer of bad news, but this is exactly what’s happening to most investors right now. Which means there’s a VERY good chance it’s happening to you.

You see, I’ve been burning the midnight oil researching the fees in popular mutual funds – including the ones in many 401(k) plans – for a new course in financial literacy we’ll be rolling out soon.

The course will give you a step-by-step plan for ending all your financial worries in as little as 90 days… and it contains breakthrough strategies you won’t find anywhere else. I’ll be giving you more details about it over the next month or two, so stay tuned.

But in the meantime, what I discovered about what experts have called “the silent enemy in our retirement accounts” – fees that compound against you that are charged by mutual funds and 401(k) and IRA plan administration costs – will stun you.

Let’s start with the cost of popular Target Date Funds or TDF’s,” the “default investment” in many 401(k) plans.

As I’ve written about before and discuss in detail in chapter 5 of my New York Times best seller, The Bank On Yourself Revolution, the mutual fund industry lobbied Congress to make TDF’s the default investment in 401(k)’s. And that became part of the law Congress passed called the Pension Protection Act of 2006.

These funds have some of the highest costs of all mutual funds, and their track records stink

But get this. If your employer follows the law and automatically puts your money into TDF’s, you have no recourse if you lose your shirt! Your employer has protection from liability.
fee-statementSo, I researched the fees in the four largest/most popular Target Date 2030 mutual funds today. The year refers to the date you’re planning to retire, in this case 2030. These funds are supposed to invest more conservatively each year as you get closer to retirement.

I said “supposed to,” because the Government Accounting Office found that during the crash of 2008, “some TDF’s designed for participants retiring in 2010 lost considerable value, just over 40% in one case.” 

Can you imagine being just months from retirement, only to see your nest egg take a 40% hit? Would you be stunned? Devastated? “[M]any participants were unaware… that such losses were possible so close to the retirement date.” Ouch!

I found that three of the four largest Target Date 2030 funds have fees so high they will indeed devour nearly $4,000 of every $10,000 you put into them over the next twenty years. And that balloons to almost $8,000 over 30 years, due to the “negative compounding” effect of added-on mutual fund and plan administration fees. (But your employer can breathe a sign of relief.)

You see, compounding is a thing of beauty only when it’s working for you, as with compound interest.

Fees that are tacked on compound against you by an exponentially increasing amount over time. That means the longer you invest in these funds and plans, the bigger the bite they take out of your hard-earned savings.

And I found some Target Date 2030 funds with much higher fees than these – including one “brand name” fund that will devour 72% of your investment just over the first 20 years!

But what about “low cost” index funds?

That’s another area I’ve been researching – and there is no assurance that you will be paying low fees.

For example, the difference between three well-known funds that track the S&P 500 index is enormous, ranging from eating 5% or less of every $10,000 you put into them… to devouring 71% or more of your hard-earned dollars! 

And none of these numbers even includes the rest of the plan administration and account fees you pay in a 401(k) or IRA!

A 2009 study by researchers from Harvard and Yale found that even well-educated savers …

overwhelmingly failed to minimize index fund fees. Instead, they placed heavy weight on irrelevant attributes such as funds’ annualized returns since inception.”

Which brings me to one of the biggest myths about Bank On Yourself…

Who complains the loudest that Bank On Yourself-type policies pay too much commission? Often stockbrokers and financial planners. They claim that high commissions are the only reason agents sell these policies.

Nope. The reality is that those whining money managers are actually making up to ten times as much off your business as Bank On Yourself Advisors! Let’s compare: Assume you put $10,000 per year for thirty years into a Bank On Yourself-type policy and the very same amount into an investment account.

According to those financial planners and experts, the agent who sold you the policy would earn about $10,000 commission in the first year and a small commission each year after that.

That would be true of the policies most advisors talk about. But because a Bank On Yourself Authorized Advisor will direct much of your $10,000 annual premium into the riders that make your cash value grow a lot faster, that advisor will only make between $3,000 and $5,000 in the first year, not $10,000. They’ll receive a small renewal commission during the remaining years, bringing the total commission paid over thirty years to about $8,500.

Meanwhile, the planner who’s complaining that this is way too much commission will earn a management fee every year of at least 1% of your account value (and often it’s 1.5% or even 2%) which, if the market has moderate returns over the same thirty years, means he’ll earn $100,000 – or more! You don’t need your calculator to figure who’s getting paid way too much. 

Hitting the mark

Will your broker or money manager hit the mark?

Add to that, the investment account manager will not be able to tell you how much your account is going to grow over that thirty years because he has no clue. (Wanna try a fun experiment? Ask your broker or money manager if he’ll guarantee that you’ll have a specific amount in your account in ten or thirty years, and if he’ll give you a money-back guarantee if he misses the mark!)

On the other hand, before you even initiate a Bank On Yourself plan, you’ll know the minimum guaranteed value of your plan in any given year. 

So let me ask you: Would you rather pay $100,000 to the money manager who has no idea how it will all turn out in the end? Or $8,500 to the Bank On Yourself Advisor who can tell you your guaranteed result? By the way, unlike fees you pay a money manager, all fees and expenses, including the Bank On Yourself Advisor’s commissions and the cost of insurance, have already been deducted from your guaranteed bottom-line numbers. There are no added-on fees to compound against you!

Would you like to find out what your guaranteed bottom-line numbers would be if you added Bank On Yourself to your financial plan? Just request your FREE Analysis here (if you haven’t already) and find out today!Request Your Analysis Button

Is Wall Street rigged?

How would you feel if you went online to buy something – for example, a TV that’s listed at $495.00 – but when you get your order confirmation and credit card statement, you realize you got charged $535.00 for it instead?sticker shock

When you inquire about the price hike, you’re given the run-around, but eventually you’re told that there was only one TV available at that price, and someone else bought it a split second before your order got processed. So they filled your order with the same TV at the then-available best price, which was higher.

And, they remind you, they have an “all sales are final” policy, so you’re stuck with the deal.

You’d probably raise holy heck, wouldn’t you? Or you’d vow never to patronize that company again, right?

So, you make your next online purchase from a different company… and the exact same thing happens! In fact, it happens every time you make an online purchase, adding up to significant lost dollars to you over time.

Well, as it was revealed last week, this is exactly what’s happening to stock market investors every day – and it’s been going on for years. And it’s costing every-day investors billions of dollars.

60 Minutes just did an exposé on it, titled “Rigged,” just as a much-anticipated new book by Michael Lewis called Flash Boys blew the lid off this latest scandal.

Lewis summed it up this way:

Stock market is rigged. The U.S. stock market – the most iconic market in global capitalism – is rigged… by the stock market exchanges, the big Wall Street banks and high-frequency traders.”

When asked who the victims of this currently legal scam are, Lewis said “Everyone who has an investment in the stock market.”

Lewis then revealed in simple terms how technology and robot computers are able to make trades at speeds 100 times faster than you can blink an eye. He described it as “A system so complex, it’s all but invisible. If it wasn’t complicated, it wouldn’t be allowed to happen. If it’s so complicated that you can’t understand it, then you can’t question it.”

Watch the 60 Minutes video or read the transcript here.

The New York Attorney General, the Commodities Futures Trading Commission, and the SEC are launching investigations into “high-frequency trading,” of which this latest scandal is just one variation called “front-running.”

To make “front-running” easy to understand, let’s go back to our example of buying a TV at an online store, priced at $495. It turns out the REAL reason you got charged a higher price for it is that there’s an underground “buyers’ club” with massive purchasing power that’s figured out how to use sophisticated technology to know you wanted to buy that $495 TV… buy it a tiny fraction of a second before you can, and then sell it to you for a higher price.

Of course, plenty of talking heads on Wall Street immediately came out and defended these practices, or insisted Wall Street isn’t rigged. (Gee, does that surprise anyone?)

But this is nothing new

It’s been going on for a long time – technology has just made it harder to know when you’re getting taken.

broken Wall StreetLast summer, I tracked Wall Street scandals and scams during the month of August – a month I figured would be a slow news month given that a lot of traders were vacationing at their mansions in the Hamptons.

But the sheer quantity and depth of the scandals that month surprised even me. My summary, A Month of Scams and Scandals on Wall Street, makes an entertaining and eye-opening read.

And, if you missed my article about the profound lesson on investing we can learn from the recent Oscar-nominated movie, The Wolf of Wall Street, I encourage you to check it out now.

The movie is based on the autobiographical book by Jordan Belfort, which details his rise and fall on Wall Street.

Belfort still owes most of the $110 million he owes to his victims. But the clincher is that today he gets paid big bucks by major corporations to teach their sales reps how to “control the sales conversation and close every single deal that’s closeable.”

Really! You can’t make up stuff this good!

How much more proof do we need to know that the fix is in on Wall Street?

Are you ready to bypass Wall Street and grow your wealth safely and predictably every single year– even when the markets are crashing? 

You can join hundreds of thousands of people of all ages and incomes who use the Bank On Yourself method to do just that. Just request your FREE Analysis here (if you haven’t already). And then you can tell the banks and Wall Street to go take a hike!

Request Your FREE Analysis!

Scratchy toilet paper, lattes and retirement

My husband Larry and I hate scratchy toilet paper so much that when we travel, we pick up some “Charmin Ultra Soft” at a local store.

Larry, who likes to be prepared for any emergency, even keeps a roll of his preferred cushy paper in the trunks of both of our cars.

Larry says…

You just never know when it’ll come in handy”

(There are some questions you learn to stop asking…)

So why am I telling you about our personal hygiene preferences?
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Are we living in the United States of Amnesia?

It was announced last week that Americans’ wealth reached a record high, thanks to a surge in the value of stocks and homes.

I’m sorry to be the bearer of bad news, but here’s a news flash: You haven’t made a penny in the stock market!

torn paper

We’ve been here before…

Just like those glowing reports about how much Americans’ wealth had ballooned prior to the last financial crash, the new reports are pure fiction. Until you sell your assets and lock in your (hopefully) gains, you have nothing more than a bunch of eye-popping numbers on paper. Those numbers repeatedly sucker many of us into believing we have real wealth and financial security when we do not.

There’s a big difference between paper wealth and real wealth. Do you remember the go-go years of the dot-com bubble? I do. My husband Larry and I got into checking our retirement account almost every day because it was growing that fast. Yahoo! Some weeks we’d see such an enormous jump that we’d high-five each other shouting, “We’re rich! We’re rich!”

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Bank On Yourself Revolution hits New York Times best-seller list!

I just found out my new book, The Bank On Yourself Revolution, hit #4 on The New York Times best-seller list the first week it was released!New York Times List

It also hit #1 on Amazon and the Barnes & Noble website.

And it hit the USA Today best-seller list.

Order your copy here today and save 27%!

One week after the book was released, my publisher had to rush to do a second printing, because they said the book has been flying off the retailers’ shelves.

I’m incredibly gratified by this response, as I poured my heart and soul (along with a lot of blood, sweat and tears) into this book.

If you haven’t gotten your copy of The Bank On Yourself Revolution yet – or you’d like to get additional copies for friends and relatives – why not grab yours now, before the current stock runs out?

Order The Bank On Yourself Revolution at a 27% discount right here.
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The good, bad and the ugly of the new myRA

You’ve probably been hearing about the new “myRA,” a new government-run retirement account that President Obama unveiled at his State of the Union address and plans to create with a stroke of his pen.
Obama State of the Union Address
Its primary purpose is to offer a savings option to the 50% or so of U.S. workers who have no access to employer-sponsored retirement plans and have little saved for retirement.

The appeal is that it “guarantees a decent return with no risk of losing what you put in,” according to Obama.

Sounds okay so far, right?

I did some digging into the details to understand more about how this program will actually work… and to help you sort through the pros and cons of programs like this.

Below I’ve listed the good, the bad, and the ugly about this new program. But really, most of the bad and the ugly points apply to all government-run retirement accounts, including 401(k)’s, 403(b)’s, IRA’s, etc. So if you have one of these plans, I urge you to read this today.

The good…

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A profound lesson on investing from the Wolf of Wall Street

If you haven’t seen the Oscar-nominated movie, The Wolf of Wall Street yet, I’m not necessarily suggesting you see it.

It’s based on a true story of Wall Street’s excesses, and it’s chock-full of graphic scenes of sex, drugs and debauchery. And it’s l-o-o-o-o-o-n-g – about three hours.

The WOLF of Wall Street PosterBut whether you decide to see it or not, there’s a scene in it that is so profound, I’m going to spill the beans about it here. It’s the best ten seconds of any movie I’ve seen in quite a while, especially given the 1,200-point drop in the Dow over the last couple weeks. But first, here’s a little background info…

The movie, directed by Martin Scorsese and starring Leonardo DiCaprio, is based on the autobiographical book by Jordan Belfort, which details his rise and fall on Wall Street.

Belfort had just finished training at a major Wall Street firm, and on his first day as a licensed stock broker, the world markets crashed. It was “Black Monday” – in October, 1987.

The firm was one of many that soon closed down, and Belfort was out of a job. But not for long. He soon discovered a world of white-collar crime, taking over a Long Island penny-stock cold-calling boiler room, and was soon making millions by convincing investors to buy stocks his company had invested in, and then selling the stocks for a huge profit. The investors were left with worthless holdings.

Ultimately, after a Federal investigation, Belfort pleaded guilty to securities fraud and charges of money laundering. Rather than face decades behind bars, he became a government witness. He ended up serving 22 months in prison and was ordered to pay his fraud victims $110 million in restitution. He was also barred from the securities industry for life.

Believe it or not, today Belfort gets paid big bucks by major corporations to teach their sales reps “the art of Straight Line Persuasion – how to create instant rapport, control the sales conversation and close every single deal that’s closeable.”

Really! You can’t make up stuff this good!

And he hasn’t paid most of the $110 million he owes to his victims, but that’s another story.

Nothing has really changed on Wall Street, as I reveal in the article I wrote this summer, “A Month of Scams and Scandals on Wall Street.” And JP Morgan Chase just gave a 74% raise to Chief Jamie Dimon in a year in which the bank paid more than $20 BILLION in fines and other legal costs.

Now for the Best 10 Seconds in the Movie

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Infographic: The Crisis in Pensions and Retirement Plans

A brief history of retirement in the U.S.

Retirement Crisis

How to become your own “banker”

Over the holidays, I received a number of emails with good wishes for the New Year from subscribers who use the Bank On Yourself method to grow their wealth safely. Many also told me how they’re using their plans.

Derek Logan with his newborn granddaughter

Derek Logan with his newborn granddaughter

One of those emails came from Derek Logan, a corporate accountant who is the textbook “poster boy” for someone who did all the right things we were taught to do financially, who decided to stop feeding the insatiable Wall Street Casino with his hard-earned dollars after seeing his retirement account value slashed in half several times.

Derek started his first Bank On Yourself plan about four years ago and wanted to update me on how he’s been able to actually use his plans to become his own “banker” during that time. Derek said he’d be happy to share his experience with subscribers to this newsletter, because…

It’s not about what I have done, but about what Banking On Yourself can do for anyone.”

This could be you… [Read more...]

Why half of households will STILL struggle in retirement

Even with the run-up in the stock market and housing prices, half of all American households are at significant risk of not being able to maintain their current standard of living after retirement.

That’s the conclusion of a surprising new study released last week by the Center for Retirement Research at Boston College.

That’s only slightly better than the Center’s National Retirement Risk Index showed in 2010, in spite of a 45% inflation-adjusted increase in the stock market and a 6% increase in home prices since then.

In fact, the Center’s research shows the picture is even worse than in 2007, which is why the study concluded…
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