Increase your Retirement Nest Egg by $2.6 Million
Friday, January 12, 2007 | Teeka TiwariRating:
Indexes are up, but stocks are down. What do I mean? I mean that a quick perusal of the index and sector Bullish Percent charts shows money actually getting sucked out of the broad market. To this trader ,the market's internals are getting weaker and weaker. The patient may still have ruddy cheeks, but he’s starting to slur his speech. You will get a chance to buy your favorite stocks cheaper, maybe even much cheaper. Continue to exercise patience and do not chase stocks here.Wall Street has spent millions convincing the public that they are the sole keepers of your financial future; and for a small nominal fee (usually 1% annually,) they will guide you through the perilous investment waters to deliver you to the land of your financial dreams. It’s an interesting fairy tale, and it would be a humorous one, at that, if it weren’t for the fact that
so many people have bought into it.
Their pitch is simple: no one can beat the market ,so why try? So they take the approach of spreading your money around in multiple sectors using a buy and hold strategy and look to give you an average market return.
But let’s take a closer look at this strategy before we dismiss it out of hand. Maybe the buy and hold approach is the right one after all, and why should we begrudge the mutual fund boys their 1% fee? After all, it’s not like they are not working hard for that money, generating new ideas, poring over research and committing huge amounts of energy to generating money-making ideas.
Actually, they're not.
75% of all mutual fund equity is invested in the S&P 500. In fact, 87% of mutual fund performance is correlated to the S&P 500! Want to know another dirty little secret that the Wall Street firms hope you don’t find out?
YOU DON’T NEED THEM TO ENACT THIS STRATEGY!
Do you want to know how to do this on your own?
Well, here it is. Just buy five different exchange traded funds, one for big cap & small cap growth, one for big cap & small cap value and a diversified international exchange traded fund. Dollar cost average in every month/quarter, and after thirty years, you’ll have about an average compounded 11% rate of return (that is, if you also reinvested all of your dividends.) That’s it! Pretty simple, huh? No wonder the firms love this approach! It’s so profitable for them. They have you feeding them money every month; all they do is passively invest in mutual funds. That’s it! My nine-year-old daughter could do that!
“But it’s only 1% a year, and I don’t have to be bothered with it,” I can hear some of you saying. Let me show you how much that 1% per year is costing you over a thirty-year period. Let’s say you're 35, and you invest $1,000,000 in a retirement portfolio of five diversified exchange traded funds as outlined above. You go about your business for the next thirty years, building your career, raising your family, going to church and living life. Lo and behold, 65 is here before you know it. Now all things being equal, your $1,000,000 through the magic of compounding should have grown to $8,000,000, right?
WRONG!
You forgot about your friendly neighborhood brokerage firm. They have to be paid for all of the “work” that they did. Here’s what it cost: after THIRTY years of paying out 1% annually in fees it has cut your retirement nest egg BY A THIRD! Instead of $8,000,000, you will receive $5,333,333! Think about that for a second. You just paid out over $88,000 a year in fees and lost capital gains (TWO MILLION SIX HUNDRED AND SIXTY-SIX THOUSAND DOLLARS) for something you could do by yourself!
It is insanity to give up one third of your entire portfolio to enact this “no brainer” strategy!
Isn’t it time to start taking your own financial reins?
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Teeka Tiwari
Chief Investment Officer
ETF Master Trader
