June 18, 2025 • 32 mins
Investment fees might seem small, but they can quietly shape your long-term outcomes in big ways. In this episode, we break down the different types of fees, how they impact your retirement, and what you can do to make smarter, more cost-effective investment decisions.
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Episode Transcript
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Speaker 1 (00:03):
Welcome to the Real Talk Retirement Show, where we
explore the financial side ofretirement and beyond.
Whether you're currentlyretired or planning for the
future, we offer real, relatableconversations about money and
personal finances.
Most importantly, we dive intoall these topics using real talk
.
Now let's get real about yourmoney and your retirement.
(00:23):
Now let's get real about yourmoney and your retirement.
Speaker 2 (00:29):
Okay, we are back with another episode of the Real
Talk Retirement Show.
We are Brian Graff and TracyBurke from Conrad Siegel, on an
absolutely beautiful day at theend of May here in central
Pennsylvania, can't help but bein a good mood.
How are we feeling today?
Tracy, doing great today,thanks, brian, yeah, you bet.
(00:50):
Oh, today, everybody, we have atopic that we're going to cover
that I wouldn't call itglamorous, tracy, you know I
don't think people are going totune in today expecting a comedy
show from you and I.
You know, although that'sprobably a good thing anyway, I
don't think anybody wants tohear our dad jokes, right?
So maybe that's not a bad thing.
But today we're going to betalking about something again,
(01:10):
maybe not glamorous, butsomething that we feel is really
, really important which isreally understanding the true
impact of fees and expenses whenit comes to investing.
So, again, really important.
Glad you tuned in and we aregoing to kind of dive right into
this discussion today.
And because it is a little bitof a, you know, again not super
(01:34):
exciting, beautiful topic, let'sstart by painting a picture,
telling a little bit of a story.
You know, in one of our earlierepisodes of the Real Talk
Retirement Show, we had somelisteners comment on how much
they enjoyed our references toJimmy Buffett playing tribute to
the late great crooner, right.
And what we're going to do today, then, is we're going to start
off by going back toMargaritaville on that beautiful
(01:56):
summer morning, getting readyto set sail on this gorgeous
wooden sailboat that we builtright.
So imagine, we built thisbeautiful wooden sailboat, which
represents our investmentportfolio, right, and that
sailboat we're on it now andwe're gliding across the ocean
towards the island of ourfinancial goals.
Okay, stay with me here.
(02:17):
Now.
The wind, right, that's behindus.
We'll call that the marketgrowth, as we relate it back to
investments.
That wind, or that marketgrowth, is propelling us forward
.
And the sturdy sails on ourvessel, right, those are our
contributions, the money we'reputting in to our retirement
plans.
That's what's really helping usgain momentum.
(02:37):
Okay, now everything is goinggreat.
We're traveling full speedahead towards retirement.
And now imagine these little,small holes start appearing in
the hull of our ship right, eachlittle hole represents an
expense, such as an investmentfee or a management fee, and you
know, individually they seemminor, like look a little hole
in our ship, right, but overtime, the more of those little
(02:59):
holes that go in there, the morewater that slowly starts
seeping into our boat andeventually our progress is
slowed down quite a bit, right,and if left unchecked, whether
we're talking about holes orexpenses in our retirement
portfolios, you know, thoseexpenses can compound and they
can force us to bail out moreand more water over time,
(03:20):
reducing our investment returns,right, instead of just simply
focusing on moving forward.
So you know, again, instead ofjust smooth sailing into
retirement, these expenses orthese holes in our ship make it
much more difficult and inhibitus from reaching our goals.
Okay, now, this was just a funlittle story to go back to
Margaritaville, really, just tomake a point, right?
(03:43):
But, tracy, when we think aboutthis analogy and just expenses
in general, how much of animpact do they really have on
our investment portfolio?
Speaker 3 (03:51):
Well, the short answer is it can be a really
huge impact.
Brian right, and again, it'snot something that we put a lot
of effort into or think about,or a lot of investors don't.
Here at our firm, we do spend,as the investment advisor, a lot
of attention to this topic, butagain, if you're not conscious
about those fees and investmentsexpenses can really make a huge
(04:17):
impact.
So I want to start with anexample.
This was a study that aprofessor from Utah State
University named Craig Israelsondid a couple of months ago, and
the study basically comes outwith the following parameters so
imagine somebody has an IRA andit's worth a million dollars
and it's invested 60% in stocksand the other 40% in bonds and,
(04:41):
like a lot of investments, 401ksin particular, a mix of mutual
funds and ETFs.
But in this case this investorworked with a financial advisor.
So all in total, expenses wereright around 1.5%, which
somebody that works with anadvisor.
The statistics are that'sprobably a pretty typical or
(05:04):
average all-in expenses.
So if those expenses wereactually reduced by one-third,
so instead of one and a halfpercent, if they were now only
one percent total all-in, thatwould result in additional
annual retirement income of $700more every single month for the
(05:24):
rest of that person's life.
So again, having reducedexpenses will make a big
difference and if you think $700more a month, I think everybody
probably agree.
You know most investors wouldlove to have that additional
income.
That's almost $8,400 additionalper year of additional expenses
, or additional income, just toyou know, in terms of reducing
(05:49):
expenses, if you're able to doso.
So costs do matter and ofcourse we're going to talk about
.
You know what to look for andhow to try to reduce those costs
as we continue, brian.
But again, so with that sort ofsetting the table a little bit
here, let's jump into what aresome of these expenses that we
(06:09):
often see in investmentportfolios.
Speaker 2 (06:13):
Yeah, absolutely, tracy Boy, that is.
So going back to your earlierstatement, just the difference
between 1.5% fee and a 1% fee tohave an $8,300 a year potential
reduction in your income isreally crazy.
Most people see those numbers.
I pay 1%, I pay one and a half.
You would never think on thesurface that it's that impactful
.
Yeah, so thanks for againsetting that stage for us, tracy
(06:34):
.
So really, as we're goingthrough things today, we're
going to talk about three maintypes of expenses or fees and,
for those listening, that are inworkplace retirement plans.
There are many similarities tothese fees and we will try and
point them out as we go along.
But the first main fee we wantto talk about is the fee that we
would pay to an advisor or thefee that we're paying for advice
(06:57):
with our portfolio, and I thinkwe want to start by saying that
you know, the cost of goodadvice is certainly worth it if
it's reasonable.
So I guess we'll start byasking that question, tracy what
is reasonable?
Speaker 3 (07:11):
Yeah, and the cost of advice, especially if you're
working with an advisor,personal financial advisor
typically the industry averagesomewhere right around 1%.
Sometimes it's a little bithigher than that, but generally
one percent is that rule ofthumb.
But of course, like otherthings you pay for, it really
depends on what you get right.
(07:31):
You know, if you're paying onepercent, maybe you're getting
some great advice, maybe you'renot getting a lot of attention
and maybe you know it's notworth it.
The other thing to keep in mindthe cost of advice.
It often depends on the dollaramount you're investing as well.
Most advisors have what theyrefer to as break points.
So the more money, thepercentage goes down.
(07:54):
While the dollar amount wouldcontinue to go up, the
percentage of assets goes downas well.
So, sort of as you alluded toBrian, it can be certainly worth
the cost of good advice.
But I know you've done someresearch and looked at some
studies of is good advice worthit?
Speaker 2 (08:16):
Yeah, and those studies say that it is Tracy.
We looked at a study done byFidelity a name that I think
everybody's familiar with andthey stated at the end of that
study that financial advice canadd between one and a half to 4%
in your returns over extendedperiod.
That's a pretty significantgain.
And to kind of back that up, welooked at a different study
(08:37):
done by our friends at Vanguardand they stated that advisors
can add up to, or even exceed,3% in net returns.
So you know again, according tosome of these trusted
organizations, it looks likeadvice certainly can be worth it
if you know you pick the rightadvisor and the fees aren't
excessive.
Speaker 3 (08:58):
Yeah.
So good advice obviously can beworth it from there.
But it reminds me, you know, uh, sitting down with, with many
investors over many years, I'veheard, you know, folks that have
said the phrase you know well,I don't pay my advisor or my my
advisor doesn't charge a feeright and of course, you know,
it just makes me smile sometimes, maybe not externally, but
(09:19):
inside, and I'm always thinking,and sometimes I I do say well,
you know, are they a nonprofit?
You know, wow that advisor isjust working out of the goodness
of their heart.
Speaker 2 (09:30):
Right, nothing in life is free.
Tracy, come on.
Speaker 3 (09:32):
Exactly, yeah, and you know we'll get into some of
the hidden costs and some of theother type of things.
And really often what we'rereferring to with that phrase is
, you know, advisor working oncommission, where where the
money's technically not comingout of your account directly but
indirectly it is.
But again, a good advisor isalways going to fully disclose
(09:55):
all the cost, not only just whatthey're charging but whatever
you're invested in, and we'lldig into that momentarily.
And again, as Brian indicated,for those in workplace
retirement plans, there'ssometimes differences from
working with a personalfinancial advisor, but there is
a cost of advice in almost every401k or workplace retirement
(10:17):
plan as well, because mostemployers hire a firm to provide
advice on the plan menu.
So the investments that youhave to choose from, and a lot
of times they package themtogether and give you easy
options.
Now, of course, the good newsin 401k, that cost is not that
1% generalized cost that I saidthat many advisors charge, but
(10:41):
it nonetheless and it'stypically less than that because
there's more scale to it, butthere is a cost to the plan, so
it's important to think about.
So the cost of advice is thefirst of three items that we
want our listeners to be awareof today, Brian.
Speaker 2 (10:57):
Excellent.
So we'll go right into thesecond type of fee that we want
you to be aware of, and that isthe fees that are charged
directly from the investmentsthemselves.
So, as you probably know, everytype of packaged investment
we'll call it has some sort ofcost associated with it that you
probably aren't going to see ona statement.
So, when you think about apackaged investment, we're
(11:19):
typically talking about funds,whether it's a mutual fund or an
ETF very common in your 401kplans or when you're working
with a trusted advisor.
And then, within those funds,we have two separate categories.
We have what we would callactively managed funds and we
have passively managed funds,and they definitely have
(11:41):
different fee structures.
Tell us a little bit more aboutthe fees associated with each
of those categories, Tracy.
Speaker 3 (11:49):
Yeah.
So let's start with activelymanaged, and it is what it
sounds like.
It's a fund manager, thecompany, whether it's a Fidelity
Vanguard, any of those otherproviders that are out there
that are actively managing thatfund.
That means they're activelypicking stocks and trying to
outperform the market.
So because of that activemanagement, they have to have
(12:11):
more folks on their team, moreresearchers, more traders, most
likely, and because they havemore people working on that fund
, that's going to drive up theexpenses right.
So they have more salaries andeverything else.
So actively managed fundsinherently have a higher expense
ratio.
Plus, because there's a lot ofactive trading, a lot more
active trading right, they'rejumping in and out.
(12:32):
There's going to be tradingcosts that are going to maybe
diminish some of those returnsin the fund as well.
So that's the active side.
On the other side of thespectrum is that index or that
really passive type of mentalitythat's really tracking an index
and the teams that are runningthose are certainly less in
(12:56):
number.
So the cost of an index orpassive fund has a very low.
What we refer to as an expenseratio and that's the terminology
that we use in the industry,that the expenses of those funds
we refer to as the expenseratio.
So again, that expense ratio inan index fund is very low
(13:20):
comparatively.
Plus there's not a lot oftrading costs in and out of the
positions because they're nottrying to actively time
individual stocks or whatever itmight be.
So what are some of those, thoseaverage, or what are the?
What's a typical expense ratio?
So Morningstar, which is anorganization that sort of,
(13:42):
gathers tons of financial marketdata and anybody can go out to
Morningstarcom and find thisinformation.
But the average activelymanaged fund in what we refer to
as the large cap blend category, that's similar to the S&P 500
(14:03):
index which a lot of folks areaware of, right?
So a fund that's trying totrack against the S&P 500 index,
the typical expense ratio rightnow is 0.8%.
So sometimes we say that's 80basis points, where the index,
the typical index fund, theaverage index fund, an S&P 500
(14:23):
index fund, so to speak, can beout there for right around four
basis points, 0.04%.
Speaker 2 (14:30):
Yeah, sometimes it's good to put, like an example to
that, a real numbers to it,tracy.
So you know 0.8% versus 0.04,sometimes hard to wrap your
brain around that but if youthink about in terms of dollars,
when you think about theactively managed fund charging
that, you know 80 basis points,that 0.8%, that's essentially $8
.
You're paying in fees for every$1,000 you have invested,
(14:52):
whereas you think about thatpassively managed fund, like
Tracy said, maybe charging 0.04%, that's essentially 40 cents on
every $1,000 that you haveinvested, usually an annual
charge.
So $8 versus 40 cents is reallya huge gap and especially when
you multiply that by manythousands or hundreds of
(15:12):
thousands of dollars.
Speaker 3 (15:14):
Yeah, absolutely can make a big difference.
And the other thing that comesto mind when we're comparing
that 80 basis points versus thefour, well, modern math tells us
that's a 76 basis pointdifference.
Right, that's just slightlyover three quarters of 1%
difference.
So just to equalize thatactively managed fund has to
outperform the index by 76 basispoints just to equalize that
(15:40):
additional expense.
So that's often a tough bar toget over.
But again, passive investing,or that index investing, that's
certainly becoming more popularover time.
And here's another way to thinkabout it as coffee drinkers, a
lot of people will.
Sometimes they'll make a cup ofcoffee at home or they'll go
(16:02):
out and buy a cup of coffee.
So just ballparking, maybe athome, when you get all the
supplies, maybe it comes down tocost you a quarter or 25 cents
to make a cup of coffee at home.
Or you could drive by Starbucksand go and pay 20 times that
amount, you know, which would be$5 in that example, 25 cents
(16:26):
versus five bucks.
And some people will say, hey,it's worth paying 20 times more.
And a lot of, I think people,especially if you're thinking a
little bit more budget consciouswill think, hey, if I can do
this for, you know, onetwentieth of that cost.
That would make a lot of sense.
Speaker 2 (16:46):
Yeah, that's a good analogy, Tracy.
It's almost like the oppositeof this get what you pay for
concept, right?
So when you think about hotels,right, let's just compare a
Super 8 hotel or motel, whateverit would be considered, versus
the Ritz-Carlton, right?
We'll be very extreme in ourexamples and there's nothing
wrong with a Super 8 motel,right?
I mean, you may get a very goodnight's sleep there, just like
(17:07):
you would at the Ritz-Carlton,but I think we all know you're
going to pay a heck of a lotmore at the Ritz Carlton and you
know, maybe or maybe not it'sworth it for you for the same
amount of sleep.
So you know, with hotels, youknow, you know what you're
getting when you pay a price.
But with investments, usuallyover the long term, cheaper is
better, okay.
So I think that's kind ofinteresting to think about that.
(17:28):
And you know, when we go backto the whole, the fee part, what
you're paying for beinginvested in those funds.
Those fees are often a verygood predictor of fund
performance.
Dimensional Fund Advisors DFAdid a study showing that lower
expense funds so again,typically we're talking about
those passively managed indexfunds they perform better than
(17:50):
higher expense funds overperiods of 10, 15, and 20 years.
Speaker 3 (17:56):
And often by pretty significant margins too, which
was interesting to see.
So what are higher expenseinvestments?
We're talking about that.
Investments sometimes carryhigher expenses and maybe lower
is better, and annuitiessometimes fall in that category.
There are some good annuities.
(18:16):
There are some less goodannuities.
The less good annuities oftenhave 2%, 3%, 4% of annual fees.
Some alternative investments,whether it's hedge funds or some
things that are outside of atypical stock or bond type of an
investment, some things thatare outside of a typical stock
or bond type of an investment,reits, that's, real estate
(18:37):
investment trusts, especiallysome of the private REITs that
are out there.
They can get pretty expensiveand, just like some mutual funds
, there's some what we refer toas high load or high expense
mutual funds.
So again, there's just someexamples that are out there and
just being aware of it and partof it, some of these costs and
we'll talk about this, I think,in a little bit can be hidden.
(18:58):
So just being aware of whatthose expenses are pretty
important.
So that's the second item thatwe wanted to cover, brian.
Let's move on to the third one.
What's that look like?
Speaker 2 (19:08):
Yeah.
So the third type of expense wewant to talk about is the fee
that we all pay to our custodianright, and a custodian is
basically that platform wheresomeone holds our money, for
example, like a Charles Schwab,a Fidelity.
You know those custodians thatare holding our money the bank,
if you will they're making moneyas well.
(19:28):
Paying them include, you know,transaction fees, maybe
commissions, markups, spreads,sales loads, purchase and
redemption fees and just overallregular trading fees.
And you know if you and you andyour advisor, if you're working
with advisor or if you'retrading frequently, that often
leads to hired fees, right, moremore trading costs.
(19:49):
You know custodians make moremoney with more trading.
So they like that you're goingin there and moving your money
around and you know, to us it'skind of a bit like gambling at a
casino.
The house is going to get paid,no matter what.
In this case the house is thecustodian.
So, going back to our mentionof workplace retirement plans
your typical 401k, 403b planssimilarly there's going to be a
(20:11):
custodian associated with thatplan.
So a custodial fee will apply.
But there's also, on top ofthat, something that we call a
record keeping fee which is paidto the firm that is
administering your workplaceretirement plan.
You know they send statements,they track your activity,
contributions, distributions.
Typically they have a websitethat they're maintaining on your
(20:33):
behalf.
So, in addition to custodialfees, those of you in your 401k
are also probably payingrecord-keeping fees as well.
Speaker 3 (20:40):
Yeah, and if I can say, brian, you know,
unfortunately not all of thesefees are transparent.
Right, some are visible butmany are hidden.
And you know, the financialservices industry is definitely,
you know, definitely known forthose hidden fees.
And if we think, looking on astatement, you're rarely, if
ever, going to see an investmentexpense Whether it's that
(21:02):
expense ratio that we justtalked about it's usually never
going to be listed on astatement.
So sometimes you have to dig alittle bit deeper, look some
other places.
So sometimes you have to dig alittle bit deeper, look some
(21:26):
other places.
Advisor and transaction feesoften will be sitting there on
statements but it's reallytucked away in a fine print and
sometimes you have to lookreally hard to find where that
is.
As we think, through investorsworking with all the variety of
advisors out there, I guess youknow the question is how many
advisors are probably out theretransparently showing fees?
Speaker 2 (21:42):
I'm going to say probably very few, tracy,
unfortunately.
I will say, though, that ConradSiegel, the company Tracy and I
are with, we are a fiduciary,and it is our job to, it is our
role, to make sure we're alwaysfully disclosing all those fees
to you.
We think that is trulyimportant, that transparency,
and we even have a pagededicated in reports to our
(22:04):
clients.
So, hopefully, if you'reworking with a different advisor
, you're getting that same levelof service and fee exposure as
well.
And again, when it comes toyour 401k plans, it's something
I know with our clients wedisclose on our statements, and
that is probably more of anactual requirement, though those
are policed, maybe a little bitmore than what you're going to
experience through an individualadvisor.
(22:24):
But look for fees on yourstatements, read your annual
disclosures just to make sureyou know, as we keep saying, you
know exactly what you're payingfor disclosures, just to make
sure you know, as we keep saying, you know exactly what you're
paying for, you know what you'regetting and what the costs are
for those services.
And if you're not sure, callyour provider directly and ask
them hey, what am I paying, whatare the different services,
what are the charges, and thenyou can really evaluate if
(22:46):
you're paying too much, just theright amount, or maybe even you
feel like you're getting awayand you got a a really good
experience going on a littlecheaper on the cheaper side.
So uncovering expenses, tracy,you know how do you really know
what they are?
Speaker 3 (23:01):
Yeah, and just very quickly going through each of
those three type expense wetalked about, starting with the
cost of advice.
Right, if you're working with apersonal financial advisor,
that should be disclosed has tobe disclosed on an advisory
agreement that you have withthem so you can take a look
there.
And if you're not sure, justask.
And you should be fully awarewhat are the fees you're paying
(23:24):
for the cost of advice.
And, as you indicated, brian,here at Conrad Siegel we include
a page in our reports withclients and same story on the
employer retirement plan sideFor the plans that we administer
on that side.
We fully disclose those, asshould be.
On the investment side again,this is where I alluded to.
(23:47):
Those are pretty hidden.
So the investment expenses arepretty hidden.
We've all gotten likely in themail, and maybe now more so via
email.
But what's called a prospectus,right, every investment like a
fund, a mutual fund or ETF, theysend it out on an annual basis.
Now, you know it's nobody'sprobably sat there and read a
(24:07):
prospectus cover to cover.
Or do you do that on Fridaynights, brian?
Speaker 2 (24:11):
Is that your activity or I was just going to say,
tracy, I never have read onefrom cover to cover.
I think there was one time Iwas struggling to get to sleep
and having a little sleepingissues.
I opened up a prospectus and Iwas gone by page two.
So yeah, that's something werecommend everybody does.
Speaker 3 (24:25):
Yeah, and of course, everybody has better things to
do than read their prospectus.
But I referenced this a littlewhile ago, morningstarcom, a
website you can type in theticker.
So the ticker, that's thetypically three, four, five
character symbol for eachinvestment that's out there and
you can see what the expensesare there.
(24:47):
Also, if you're working with anadvisor, ask what the expenses
of the investments are thatyou're in and, again, like we
said, that's something weregularly do for our clients.
And then the third area, thatcustodial or the transaction
costs that could be out there.
If you get trade confirmationsor, obviously, the statement,
(25:08):
those costs in terms of many ofthose should be on there if
there is a true trading cost.
But there are many that arehidden as well and, brian, you
referenced a couple, like theyrefer to costs that the
custodian often gets spreads,markups, commissions, some of
those type of things.
They're hidden.
So, again, ask for fulldisclosure to whoever you're
(25:32):
working with.
What are your all-in expenses?
That's super important.
Speaker 2 (25:37):
Yeah, so let's talk a little bit about industry
standards of fees.
So for a person workingdirectly with an advisor maybe
they have an IRA or other typeof investment portfolio with
their advisor the total all-incost average is roughly about
1.8% on a million-dollarportfolio and usually less for
(26:00):
higher amounts.
You're going to get somediscount there and when you
break down that 1.8%, typicallyit's about 1% that you'd be
paying to directly to theadvisor and about another 0.8
for those fund expenses that wetalked about.
And I think the most importantthing when you're working with
an advisor is to make sureyou're getting good value and
(26:20):
they're doing good work for youand they're really helping you
minimize the fund expenses asmuch as they possibly can.
Speaker 3 (26:27):
Yeah.
So, brian, the bottom line iscosts matter, right?
We've just spent a little timetalking and breaking it down.
So as we sort of finish up here, I want to finish with another
example to sort of put this inreal action.
So let's imagine you have$100,000 invested right now and
say for the next 30 years youdon't touch it.
(26:48):
And I realize that might not besuper realistic because you
might be taking money out oryou're putting money in.
But let's just say, for thisexample, $100,000 for the next
30 years, no money in, no moneyout, and you get an 8% gross
rate of return Before expenses.
You're getting 8% return a yearand then that compounds as time
(27:10):
goes on.
So if your plan, if you're allin expenses, are 1%, so instead
that 8% annual gross return, thenet return, meaning net after
fees, is now seven percent, atthe end of 30 years you're going
to end with seven hundred andsixty thousand dollars.
You start with one hundredthousand.
After 30 years of one percentexpenses, you're going to end
(27:33):
with seven hundred sixtythousand dollars.
So not bad right If thoseexpenses are now two percent,
which is a little bit above theaverage that you just mentioned,
which is about 1.8%, but sayyou have 2% of expenses.
Now, all of a sudden you'regoing to take a 25% haircut from
that $760,000 figure.
(27:54):
With 1% expenses Now, you'reonly going to have $570,000
after that 30-year period oftime.
So a 25% reduction.
Now there are people that have3% of annual expenses and a lot
of those people have no ideathat they have that.
That's another 25% reductionfrom the 2% target that I just
(28:18):
referenced there as well.
So if you have 3% expenses now,you're going to end up with
$430,000 instead of $760,000 ifyou have 1% of expenses.
So I know I threw a lot ofnumbers out there, but the
bottom line is the higher thoseexpenses, it makes a big
difference.
Speaker 2 (28:39):
So, again, costs matter.
It's crazy, tracy, yeah, youthink about that the that a
hundred thousand dollar initialinvestment, the person who paid
3%, probably unknowingly endingup with 430,000, may think that
their advisor did an okay jobfor them, not realizing they
maybe gave away over $300,000 ofa portfolio growth.
So it's, it's.
It's crazy, and it's soimportant to be well-informed
(29:00):
upfront when you start youradvisory relationship.
For sure.
Well, tracy, as we always do,we've been talking a lot.
Let's wrap things up.
Let's condense this and talkabout what we think are the most
important action items for ourlisteners today, and these are
going to be pretty simple.
I think they're probably prettyobvious.
But number one action item isknow what you are paying for.
(29:22):
I'm sorry, fee transparency isextremely important.
Be informed, know what you'repaying and if you're not sure,
like we said a few times already, ask your advisor.
Ask your advisor questions likewhat are the fees specifically
that I'm paying related to myaccounts?
How do you, mr Advisor, missAdvisor, how do you get paid?
Right, so what are all thosefees that I'm paying related to
my accounts?
How do you, mr Advisor, missAdvisor, how do you get paid?
(29:43):
So what are all those fees thatI'm paying?
So that's action item numberone know the cost of your
investments.
Speaker 3 (29:49):
Yeah, and then I would say the second action item
is to build on top of that andfocus on minimizing those costs,
now that hopefully you have abetter understanding of what
those costs are and maybe theyare very reasonable.
But, as we said earlier, makesure the cost of the advice is
worth it, the advisor cost.
Try to invest in lower costinvestments because, again,
(30:10):
lower cost typically does betterthan over the longer time.
And again ask the advisorquestions hey, is there anything
I can do to reduce some of thefees that I have after you know
what those fees are?
Or how do the fees that I'm inyou know what I'm invested?
How do they compare tosomething else?
What are other alternatives?
(30:31):
So, as we think through thatfee component, you know that
becomes the bottom line and it'simportant to invest wisely by
minimizing investments expenses.
Speaker 2 (30:43):
Yeah, for sure, for sure.
Okay, trace.
Well, listen.
By the way, it's good to haveyou back.
We gave Tracy episode numberfive off.
We invited our colleague DaveLytle in to talk about the
market.
I think Tracy was probablyrenegotiating his podcast
contract, but I'm not going tosay that's for sure, tracy.
Any comments on that?
No comment, okay, anyway, I'mreally happy that you're back
(31:05):
with us and I want to just wrapthings up by reminding our
listeners to please reach out tous with any questions that you
may have about today's podcastor anything investment related
in general.
You can reach us at podcast atconradsegalcom, and we are here
and happy to help.
And please, as always, if youliked what you heard today, if
you're enjoying the content,share it with your friends,
(31:27):
family members, give us afive-star review if you're so
inclined and, most importantly,remember to subscribe if you
haven't already.
Until next time, everybody,stay safe and stay invested.
Speaker 1 (31:38):
Thank you for tuning into today's show.
The Real Talk Retirement Showis created and produced by
Conrad Siegel, an advisory firmthat specializes in helping
people prepare for retirementand beyond.
If you want to learn more aboutour work or meet the team, you
can visit conradsegelcom.
Information on this show is foreducational purposes only and
(32:00):
should not be consideredpersonalized investment tax or
legal advice.
Before making decisions, youshould consult with the
appropriate professionals foradvice that is specific to your
situation.
Welcome to the Real Talk Retirement Show, where we
explore the financial side ofretirement and beyond.
Whether you're currentlyretired or planning for the
future, we offer real, relatableconversations about money and
personal finances.
Most importantly, we dive intoall these topics using real talk
.
Now let's get real about yourmoney and your retirement.
(00:23):
Now let's get real about yourmoney and your retirement.
Speaker 2 (00:29):
Okay, we are back with another episode of the Real
Talk Retirement Show.
We are Brian Graff and TracyBurke from Conrad Siegel, on an
absolutely beautiful day at theend of May here in central
Pennsylvania, can't help but bein a good mood.
How are we feeling today?
Tracy, doing great today,thanks, brian, yeah, you bet.
(00:50):
Oh, today, everybody, we have atopic that we're going to cover
that I wouldn't call itglamorous, tracy, you know I
don't think people are going totune in today expecting a comedy
show from you and I.
You know, although that'sprobably a good thing anyway, I
don't think anybody wants tohear our dad jokes, right?
So maybe that's not a bad thing.
But today we're going to betalking about something again,
(01:10):
maybe not glamorous, butsomething that we feel is really
, really important which isreally understanding the true
impact of fees and expenses whenit comes to investing.
So, again, really important.
Glad you tuned in and we aregoing to kind of dive right into
this discussion today.
And because it is a little bitof a, you know, again not super
(01:34):
exciting, beautiful topic, let'sstart by painting a picture,
telling a little bit of a story.
You know, in one of our earlierepisodes of the Real Talk
Retirement Show, we had somelisteners comment on how much
they enjoyed our references toJimmy Buffett playing tribute to
the late great crooner, right.
And what we're going to do today, then, is we're going to start
off by going back toMargaritaville on that beautiful
(01:56):
summer morning, getting readyto set sail on this gorgeous
wooden sailboat that we builtright.
So imagine, we built thisbeautiful wooden sailboat, which
represents our investmentportfolio, right, and that
sailboat we're on it now andwe're gliding across the ocean
towards the island of ourfinancial goals.
Okay, stay with me here.
(02:17):
Now.
The wind, right, that's behindus.
We'll call that the marketgrowth, as we relate it back to
investments.
That wind, or that marketgrowth, is propelling us forward
.
And the sturdy sails on ourvessel, right, those are our
contributions, the money we'reputting in to our retirement
plans.
That's what's really helping usgain momentum.
(02:37):
Okay, now everything is goinggreat.
We're traveling full speedahead towards retirement.
And now imagine these little,small holes start appearing in
the hull of our ship right, eachlittle hole represents an
expense, such as an investmentfee or a management fee, and you
know, individually they seemminor, like look a little hole
in our ship, right, but overtime, the more of those little
(02:59):
holes that go in there, the morewater that slowly starts
seeping into our boat andeventually our progress is
slowed down quite a bit, right,and if left unchecked, whether
we're talking about holes orexpenses in our retirement
portfolios, you know, thoseexpenses can compound and they
can force us to bail out moreand more water over time,
(03:20):
reducing our investment returns,right, instead of just simply
focusing on moving forward.
So you know, again, instead ofjust smooth sailing into
retirement, these expenses orthese holes in our ship make it
much more difficult and inhibitus from reaching our goals.
Okay, now, this was just a funlittle story to go back to
Margaritaville, really, just tomake a point, right?
(03:43):
But, tracy, when we think aboutthis analogy and just expenses
in general, how much of animpact do they really have on
our investment portfolio?
Speaker 3 (03:51):
Well, the short answer is it can be a really
huge impact.
Brian right, and again, it'snot something that we put a lot
of effort into or think about,or a lot of investors don't.
Here at our firm, we do spend,as the investment advisor, a lot
of attention to this topic, butagain, if you're not conscious
about those fees and investmentsexpenses can really make a huge
(04:17):
impact.
So I want to start with anexample.
This was a study that aprofessor from Utah State
University named Craig Israelsondid a couple of months ago, and
the study basically comes outwith the following parameters so
imagine somebody has an IRA andit's worth a million dollars
and it's invested 60% in stocksand the other 40% in bonds and,
(04:41):
like a lot of investments, 401ksin particular, a mix of mutual
funds and ETFs.
But in this case this investorworked with a financial advisor.
So all in total, expenses wereright around 1.5%, which
somebody that works with anadvisor.
The statistics are that'sprobably a pretty typical or
(05:04):
average all-in expenses.
So if those expenses wereactually reduced by one-third,
so instead of one and a halfpercent, if they were now only
one percent total all-in, thatwould result in additional
annual retirement income of $700more every single month for the
(05:24):
rest of that person's life.
So again, having reducedexpenses will make a big
difference and if you think $700more a month, I think everybody
probably agree.
You know most investors wouldlove to have that additional
income.
That's almost $8,400 additionalper year of additional expenses
, or additional income, just toyou know, in terms of reducing
(05:49):
expenses, if you're able to doso.
So costs do matter and ofcourse we're going to talk about
.
You know what to look for andhow to try to reduce those costs
as we continue, brian.
But again, so with that sort ofsetting the table a little bit
here, let's jump into what aresome of these expenses that we
(06:09):
often see in investmentportfolios.
Speaker 2 (06:13):
Yeah, absolutely, tracy Boy, that is.
So going back to your earlierstatement, just the difference
between 1.5% fee and a 1% fee tohave an $8,300 a year potential
reduction in your income isreally crazy.
Most people see those numbers.
I pay 1%, I pay one and a half.
You would never think on thesurface that it's that impactful
.
Yeah, so thanks for againsetting that stage for us, tracy
(06:34):
.
So really, as we're goingthrough things today, we're
going to talk about three maintypes of expenses or fees and,
for those listening, that are inworkplace retirement plans.
There are many similarities tothese fees and we will try and
point them out as we go along.
But the first main fee we wantto talk about is the fee that we
would pay to an advisor or thefee that we're paying for advice
(06:57):
with our portfolio, and I thinkwe want to start by saying that
you know, the cost of goodadvice is certainly worth it if
it's reasonable.
So I guess we'll start byasking that question, tracy what
is reasonable?
Speaker 3 (07:11):
Yeah, and the cost of advice, especially if you're
working with an advisor,personal financial advisor
typically the industry averagesomewhere right around 1%.
Sometimes it's a little bithigher than that, but generally
one percent is that rule ofthumb.
But of course, like otherthings you pay for, it really
depends on what you get right.
(07:31):
You know, if you're paying onepercent, maybe you're getting
some great advice, maybe you'renot getting a lot of attention
and maybe you know it's notworth it.
The other thing to keep in mindthe cost of advice.
It often depends on the dollaramount you're investing as well.
Most advisors have what theyrefer to as break points.
So the more money, thepercentage goes down.
(07:54):
While the dollar amount wouldcontinue to go up, the
percentage of assets goes downas well.
So, sort of as you alluded toBrian, it can be certainly worth
the cost of good advice.
But I know you've done someresearch and looked at some
studies of is good advice worthit?
Speaker 2 (08:16):
Yeah, and those studies say that it is Tracy.
We looked at a study done byFidelity a name that I think
everybody's familiar with andthey stated at the end of that
study that financial advice canadd between one and a half to 4%
in your returns over extendedperiod.
That's a pretty significantgain.
And to kind of back that up, welooked at a different study
(08:37):
done by our friends at Vanguardand they stated that advisors
can add up to, or even exceed,3% in net returns.
So you know again, according tosome of these trusted
organizations, it looks likeadvice certainly can be worth it
if you know you pick the rightadvisor and the fees aren't
excessive.
Speaker 3 (08:58):
Yeah.
So good advice obviously can beworth it from there.
But it reminds me, you know, uh, sitting down with, with many
investors over many years, I'veheard, you know, folks that have
said the phrase you know well,I don't pay my advisor or my my
advisor doesn't charge a feeright and of course, you know,
it just makes me smile sometimes, maybe not externally, but
(09:19):
inside, and I'm always thinking,and sometimes I I do say well,
you know, are they a nonprofit?
You know, wow that advisor isjust working out of the goodness
of their heart.
Speaker 2 (09:30):
Right, nothing in life is free.
Tracy, come on.
Speaker 3 (09:32):
Exactly, yeah, and you know we'll get into some of
the hidden costs and some of theother type of things.
And really often what we'rereferring to with that phrase is
, you know, advisor working oncommission, where where the
money's technically not comingout of your account directly but
indirectly it is.
But again, a good advisor isalways going to fully disclose
(09:55):
all the cost, not only just whatthey're charging but whatever
you're invested in, and we'lldig into that momentarily.
And again, as Brian indicated,for those in workplace
retirement plans, there'ssometimes differences from
working with a personalfinancial advisor, but there is
a cost of advice in almost every401k or workplace retirement
(10:17):
plan as well, because mostemployers hire a firm to provide
advice on the plan menu.
So the investments that youhave to choose from, and a lot
of times they package themtogether and give you easy
options.
Now, of course, the good newsin 401k, that cost is not that
1% generalized cost that I saidthat many advisors charge, but
(10:41):
it nonetheless and it'stypically less than that because
there's more scale to it, butthere is a cost to the plan, so
it's important to think about.
So the cost of advice is thefirst of three items that we
want our listeners to be awareof today, Brian.
Speaker 2 (10:57):
Excellent.
So we'll go right into thesecond type of fee that we want
you to be aware of, and that isthe fees that are charged
directly from the investmentsthemselves.
So, as you probably know, everytype of packaged investment
we'll call it has some sort ofcost associated with it that you
probably aren't going to see ona statement.
So, when you think about apackaged investment, we're
(11:19):
typically talking about funds,whether it's a mutual fund or an
ETF very common in your 401kplans or when you're working
with a trusted advisor.
And then, within those funds,we have two separate categories.
We have what we would callactively managed funds and we
have passively managed funds,and they definitely have
(11:41):
different fee structures.
Tell us a little bit more aboutthe fees associated with each
of those categories, Tracy.
Speaker 3 (11:49):
Yeah.
So let's start with activelymanaged, and it is what it
sounds like.
It's a fund manager, thecompany, whether it's a Fidelity
Vanguard, any of those otherproviders that are out there
that are actively managing thatfund.
That means they're activelypicking stocks and trying to
outperform the market.
So because of that activemanagement, they have to have
(12:11):
more folks on their team, moreresearchers, more traders, most
likely, and because they havemore people working on that fund
, that's going to drive up theexpenses right.
So they have more salaries andeverything else.
So actively managed fundsinherently have a higher expense
ratio.
Plus, because there's a lot ofactive trading, a lot more
active trading right, they'rejumping in and out.
(12:32):
There's going to be tradingcosts that are going to maybe
diminish some of those returnsin the fund as well.
So that's the active side.
On the other side of thespectrum is that index or that
really passive type of mentalitythat's really tracking an index
and the teams that are runningthose are certainly less in
(12:56):
number.
So the cost of an index orpassive fund has a very low.
What we refer to as an expenseratio and that's the terminology
that we use in the industry,that the expenses of those funds
we refer to as the expenseratio.
So again, that expense ratio inan index fund is very low
(13:20):
comparatively.
Plus there's not a lot oftrading costs in and out of the
positions because they're nottrying to actively time
individual stocks or whatever itmight be.
So what are some of those, thoseaverage, or what are the?
What's a typical expense ratio?
So Morningstar, which is anorganization that sort of,
(13:42):
gathers tons of financial marketdata and anybody can go out to
Morningstarcom and find thisinformation.
But the average activelymanaged fund in what we refer to
as the large cap blend category, that's similar to the S&P 500
(14:03):
index which a lot of folks areaware of, right?
So a fund that's trying totrack against the S&P 500 index,
the typical expense ratio rightnow is 0.8%.
So sometimes we say that's 80basis points, where the index,
the typical index fund, theaverage index fund, an S&P 500
(14:23):
index fund, so to speak, can beout there for right around four
basis points, 0.04%.
Speaker 2 (14:30):
Yeah, sometimes it's good to put, like an example to
that, a real numbers to it,tracy.
So you know 0.8% versus 0.04,sometimes hard to wrap your
brain around that but if youthink about in terms of dollars,
when you think about theactively managed fund charging
that, you know 80 basis points,that 0.8%, that's essentially $8
.
You're paying in fees for every$1,000 you have invested,
(14:52):
whereas you think about thatpassively managed fund, like
Tracy said, maybe charging 0.04%, that's essentially 40 cents on
every $1,000 that you haveinvested, usually an annual
charge.
So $8 versus 40 cents is reallya huge gap and especially when
you multiply that by manythousands or hundreds of
(15:12):
thousands of dollars.
Speaker 3 (15:14):
Yeah, absolutely can make a big difference.
And the other thing that comesto mind when we're comparing
that 80 basis points versus thefour, well, modern math tells us
that's a 76 basis pointdifference.
Right, that's just slightlyover three quarters of 1%
difference.
So just to equalize thatactively managed fund has to
outperform the index by 76 basispoints just to equalize that
(15:40):
additional expense.
So that's often a tough bar toget over.
But again, passive investing,or that index investing, that's
certainly becoming more popularover time.
And here's another way to thinkabout it as coffee drinkers, a
lot of people will.
Sometimes they'll make a cup ofcoffee at home or they'll go
(16:02):
out and buy a cup of coffee.
So just ballparking, maybe athome, when you get all the
supplies, maybe it comes down tocost you a quarter or 25 cents
to make a cup of coffee at home.
Or you could drive by Starbucksand go and pay 20 times that
amount, you know, which would be$5 in that example, 25 cents
(16:26):
versus five bucks.
And some people will say, hey,it's worth paying 20 times more.
And a lot of, I think people,especially if you're thinking a
little bit more budget consciouswill think, hey, if I can do
this for, you know, onetwentieth of that cost.
That would make a lot of sense.
Speaker 2 (16:46):
Yeah, that's a good analogy, Tracy.
It's almost like the oppositeof this get what you pay for
concept, right?
So when you think about hotels,right, let's just compare a
Super 8 hotel or motel, whateverit would be considered, versus
the Ritz-Carlton, right?
We'll be very extreme in ourexamples and there's nothing
wrong with a Super 8 motel,right?
I mean, you may get a very goodnight's sleep there, just like
(17:07):
you would at the Ritz-Carlton,but I think we all know you're
going to pay a heck of a lotmore at the Ritz Carlton and you
know, maybe or maybe not it'sworth it for you for the same
amount of sleep.
So you know, with hotels, youknow, you know what you're
getting when you pay a price.
But with investments, usuallyover the long term, cheaper is
better, okay.
So I think that's kind ofinteresting to think about that.
(17:28):
And you know, when we go backto the whole, the fee part, what
you're paying for beinginvested in those funds.
Those fees are often a verygood predictor of fund
performance.
Dimensional Fund Advisors DFAdid a study showing that lower
expense funds so again,typically we're talking about
those passively managed indexfunds they perform better than
(17:50):
higher expense funds overperiods of 10, 15, and 20 years.
Speaker 3 (17:56):
And often by pretty significant margins too, which
was interesting to see.
So what are higher expenseinvestments?
We're talking about that.
Investments sometimes carryhigher expenses and maybe lower
is better, and annuitiessometimes fall in that category.
There are some good annuities.
(18:16):
There are some less goodannuities.
The less good annuities oftenhave 2%, 3%, 4% of annual fees.
Some alternative investments,whether it's hedge funds or some
things that are outside of atypical stock or bond type of an
investment, some things thatare outside of a typical stock
or bond type of an investment,reits, that's, real estate
(18:37):
investment trusts, especiallysome of the private REITs that
are out there.
They can get pretty expensiveand, just like some mutual funds
, there's some what we refer toas high load or high expense
mutual funds.
So again, there's just someexamples that are out there and
just being aware of it and partof it, some of these costs and
we'll talk about this, I think,in a little bit can be hidden.
(18:58):
So just being aware of whatthose expenses are pretty
important.
So that's the second item thatwe wanted to cover, brian.
Let's move on to the third one.
What's that look like?
Speaker 2 (19:08):
Yeah.
So the third type of expense wewant to talk about is the fee
that we all pay to our custodianright, and a custodian is
basically that platform wheresomeone holds our money, for
example, like a Charles Schwab,a Fidelity.
You know those custodians thatare holding our money the bank,
if you will they're making moneyas well.
(19:28):
Paying them include, you know,transaction fees, maybe
commissions, markups, spreads,sales loads, purchase and
redemption fees and just overallregular trading fees.
And you know if you and you andyour advisor, if you're working
with advisor or if you'retrading frequently, that often
leads to hired fees, right, moremore trading costs.
(19:49):
You know custodians make moremoney with more trading.
So they like that you're goingin there and moving your money
around and you know, to us it'skind of a bit like gambling at a
casino.
The house is going to get paid,no matter what.
In this case the house is thecustodian.
So, going back to our mentionof workplace retirement plans
your typical 401k, 403b planssimilarly there's going to be a
(20:11):
custodian associated with thatplan.
So a custodial fee will apply.
But there's also, on top ofthat, something that we call a
record keeping fee which is paidto the firm that is
administering your workplaceretirement plan.
You know they send statements,they track your activity,
contributions, distributions.
Typically they have a websitethat they're maintaining on your
(20:33):
behalf.
So, in addition to custodialfees, those of you in your 401k
are also probably payingrecord-keeping fees as well.
Speaker 3 (20:40):
Yeah, and if I can say, brian, you know,
unfortunately not all of thesefees are transparent.
Right, some are visible butmany are hidden.
And you know, the financialservices industry is definitely,
you know, definitely known forthose hidden fees.
And if we think, looking on astatement, you're rarely, if
ever, going to see an investmentexpense Whether it's that
(21:02):
expense ratio that we justtalked about it's usually never
going to be listed on astatement.
So sometimes you have to dig alittle bit deeper, look some
other places.
So sometimes you have to dig alittle bit deeper, look some
(21:26):
other places.
Advisor and transaction feesoften will be sitting there on
statements but it's reallytucked away in a fine print and
sometimes you have to lookreally hard to find where that
is.
As we think, through investorsworking with all the variety of
advisors out there, I guess youknow the question is how many
advisors are probably out theretransparently showing fees?
Speaker 2 (21:42):
I'm going to say probably very few, tracy,
unfortunately.
I will say, though, that ConradSiegel, the company Tracy and I
are with, we are a fiduciary,and it is our job to, it is our
role, to make sure we're alwaysfully disclosing all those fees
to you.
We think that is trulyimportant, that transparency,
and we even have a pagededicated in reports to our
(22:04):
clients.
So, hopefully, if you'reworking with a different advisor
, you're getting that same levelof service and fee exposure as
well.
And again, when it comes toyour 401k plans, it's something
I know with our clients wedisclose on our statements, and
that is probably more of anactual requirement, though those
are policed, maybe a little bitmore than what you're going to
experience through an individualadvisor.
(22:24):
But look for fees on yourstatements, read your annual
disclosures just to make sureyou know, as we keep saying, you
know exactly what you're payingfor disclosures, just to make
sure you know, as we keep saying, you know exactly what you're
paying for, you know what you'regetting and what the costs are
for those services.
And if you're not sure, callyour provider directly and ask
them hey, what am I paying, whatare the different services,
what are the charges, and thenyou can really evaluate if
(22:46):
you're paying too much, just theright amount, or maybe even you
feel like you're getting awayand you got a a really good
experience going on a littlecheaper on the cheaper side.
So uncovering expenses, tracy,you know how do you really know
what they are?
Speaker 3 (23:01):
Yeah, and just very quickly going through each of
those three type expense wetalked about, starting with the
cost of advice.
Right, if you're working with apersonal financial advisor,
that should be disclosed has tobe disclosed on an advisory
agreement that you have withthem so you can take a look
there.
And if you're not sure, justask.
And you should be fully awarewhat are the fees you're paying
(23:24):
for the cost of advice.
And, as you indicated, brian,here at Conrad Siegel we include
a page in our reports withclients and same story on the
employer retirement plan sideFor the plans that we administer
on that side.
We fully disclose those, asshould be.
On the investment side again,this is where I alluded to.
(23:47):
Those are pretty hidden.
So the investment expenses arepretty hidden.
We've all gotten likely in themail, and maybe now more so via
email.
But what's called a prospectus,right, every investment like a
fund, a mutual fund or ETF, theysend it out on an annual basis.
Now, you know it's nobody'sprobably sat there and read a
(24:07):
prospectus cover to cover.
Or do you do that on Fridaynights, brian?
Speaker 2 (24:11):
Is that your activity or I was just going to say,
tracy, I never have read onefrom cover to cover.
I think there was one time Iwas struggling to get to sleep
and having a little sleepingissues.
I opened up a prospectus and Iwas gone by page two.
So yeah, that's something werecommend everybody does.
Speaker 3 (24:25):
Yeah, and of course, everybody has better things to
do than read their prospectus.
But I referenced this a littlewhile ago, morningstarcom, a
website you can type in theticker.
So the ticker, that's thetypically three, four, five
character symbol for eachinvestment that's out there and
you can see what the expensesare there.
(24:47):
Also, if you're working with anadvisor, ask what the expenses
of the investments are thatyou're in and, again, like we
said, that's something weregularly do for our clients.
And then the third area, thatcustodial or the transaction
costs that could be out there.
If you get trade confirmationsor, obviously, the statement,
(25:08):
those costs in terms of many ofthose should be on there if
there is a true trading cost.
But there are many that arehidden as well and, brian, you
referenced a couple, like theyrefer to costs that the
custodian often gets spreads,markups, commissions, some of
those type of things.
They're hidden.
So, again, ask for fulldisclosure to whoever you're
(25:32):
working with.
What are your all-in expenses?
That's super important.
Speaker 2 (25:37):
Yeah, so let's talk a little bit about industry
standards of fees.
So for a person workingdirectly with an advisor maybe
they have an IRA or other typeof investment portfolio with
their advisor the total all-incost average is roughly about
1.8% on a million-dollarportfolio and usually less for
(26:00):
higher amounts.
You're going to get somediscount there and when you
break down that 1.8%, typicallyit's about 1% that you'd be
paying to directly to theadvisor and about another 0.8
for those fund expenses that wetalked about.
And I think the most importantthing when you're working with
an advisor is to make sureyou're getting good value and
(26:20):
they're doing good work for youand they're really helping you
minimize the fund expenses asmuch as they possibly can.
Speaker 3 (26:27):
Yeah.
So, brian, the bottom line iscosts matter, right?
We've just spent a little timetalking and breaking it down.
So as we sort of finish up here, I want to finish with another
example to sort of put this inreal action.
So let's imagine you have$100,000 invested right now and
say for the next 30 years youdon't touch it.
(26:48):
And I realize that might not besuper realistic because you
might be taking money out oryou're putting money in.
But let's just say, for thisexample, $100,000 for the next
30 years, no money in, no moneyout, and you get an 8% gross
rate of return Before expenses.
You're getting 8% return a yearand then that compounds as time
(27:10):
goes on.
So if your plan, if you're allin expenses, are 1%, so instead
that 8% annual gross return, thenet return, meaning net after
fees, is now seven percent, atthe end of 30 years you're going
to end with seven hundred andsixty thousand dollars.
You start with one hundredthousand.
After 30 years of one percentexpenses, you're going to end
(27:33):
with seven hundred sixtythousand dollars.
So not bad right If thoseexpenses are now two percent,
which is a little bit above theaverage that you just mentioned,
which is about 1.8%, but sayyou have 2% of expenses.
Now, all of a sudden you'regoing to take a 25% haircut from
that $760,000 figure.
(27:54):
With 1% expenses Now, you'reonly going to have $570,000
after that 30-year period oftime.
So a 25% reduction.
Now there are people that have3% of annual expenses and a lot
of those people have no ideathat they have that.
That's another 25% reductionfrom the 2% target that I just
(28:18):
referenced there as well.
So if you have 3% expenses now,you're going to end up with
$430,000 instead of $760,000 ifyou have 1% of expenses.
So I know I threw a lot ofnumbers out there, but the
bottom line is the higher thoseexpenses, it makes a big
difference.
Speaker 2 (28:39):
So, again, costs matter.
It's crazy, tracy, yeah, youthink about that the that a
hundred thousand dollar initialinvestment, the person who paid
3%, probably unknowingly endingup with 430,000, may think that
their advisor did an okay jobfor them, not realizing they
maybe gave away over $300,000 ofa portfolio growth.
So it's, it's.
It's crazy, and it's soimportant to be well-informed
(29:00):
upfront when you start youradvisory relationship.
For sure.
Well, tracy, as we always do,we've been talking a lot.
Let's wrap things up.
Let's condense this and talkabout what we think are the most
important action items for ourlisteners today, and these are
going to be pretty simple.
I think they're probably prettyobvious.
But number one action item isknow what you are paying for.
(29:22):
I'm sorry, fee transparency isextremely important.
Be informed, know what you'repaying and if you're not sure,
like we said a few times already, ask your advisor.
Ask your advisor questions likewhat are the fees specifically
that I'm paying related to myaccounts?
How do you, mr Advisor, missAdvisor, how do you get paid?
Right, so what are all thosefees that I'm paying related to
my accounts?
How do you, mr Advisor, missAdvisor, how do you get paid?
(29:43):
So what are all those fees thatI'm paying?
So that's action item numberone know the cost of your
investments.
Speaker 3 (29:49):
Yeah, and then I would say the second action item
is to build on top of that andfocus on minimizing those costs,
now that hopefully you have abetter understanding of what
those costs are and maybe theyare very reasonable.
But, as we said earlier, makesure the cost of the advice is
worth it, the advisor cost.
Try to invest in lower costinvestments because, again,
(30:10):
lower cost typically does betterthan over the longer time.
And again ask the advisorquestions hey, is there anything
I can do to reduce some of thefees that I have after you know
what those fees are?
Or how do the fees that I'm inyou know what I'm invested?
How do they compare tosomething else?
What are other alternatives?
(30:31):
So, as we think through thatfee component, you know that
becomes the bottom line and it'simportant to invest wisely by
minimizing investments expenses.
Speaker 2 (30:43):
Yeah, for sure, for sure.
Okay, trace.
Well, listen.
By the way, it's good to haveyou back.
We gave Tracy episode numberfive off.
We invited our colleague DaveLytle in to talk about the
market.
I think Tracy was probablyrenegotiating his podcast
contract, but I'm not going tosay that's for sure, tracy.
Any comments on that?
No comment, okay, anyway, I'mreally happy that you're back
(31:05):
with us and I want to just wrapthings up by reminding our
listeners to please reach out tous with any questions that you
may have about today's podcastor anything investment related
in general.
You can reach us at podcast atconradsegalcom, and we are here
and happy to help.
And please, as always, if youliked what you heard today, if
you're enjoying the content,share it with your friends,
(31:27):
family members, give us afive-star review if you're so
inclined and, most importantly,remember to subscribe if you
haven't already.
Until next time, everybody,stay safe and stay invested.
Speaker 1 (31:38):
Thank you for tuning into today's show.
The Real Talk Retirement Showis created and produced by
Conrad Siegel, an advisory firmthat specializes in helping
people prepare for retirementand beyond.
If you want to learn more aboutour work or meet the team, you
can visit conradsegelcom.
Information on this show is foreducational purposes only and
(32:00):
should not be consideredpersonalized investment tax or
legal advice.
Before making decisions, youshould consult with the
appropriate professionals foradvice that is specific to your
situation.
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