The 4 Horsemen of Doom
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We included the chart below as a demonstration of the pernicious effect on wealth by costs such as "the 4 horsemen of doom":
Fees
Active management underperformance
Taxes
Inflation
"Imagine you have $100,000 invested. If the account earned 6% a year for the next 25 years and had no costs or fees, you'd end up with about $430,000. If, on the other hand, you paid 2% a year in costs, after 25 years you'd only have about $260,000."
Fees
Many traditional financial advisors charge 1%+ of your assets per year to manage a client's money. Robo or hybrid-robo financial advisors typically charge less than 1%.
Active management underperformance
If a fund/ETF trails its benchmark index (e.g. the S&P 500, MSCI World Index, etc.), this is underperformance.
Taxes
Capital gains, income taxes, and property taxes are some of the taxes that can eat into one's wealth.
Inflation
Inflation is a problem for those whose income or assets (like cash) fail to keep up with the rate of inflation.
The Federal Reserve Bank of St. Louis publishes market implied annual inflation rate expectations for different time periods (1, 5, 10, or 30 yr periods).
“In investing, you get what you don't pay for. Costs matter. So intelligent investors will use low-cost index (passive) funds to build a diversified portfolio of stocks and bonds, and they will stay the course. And they won't be foolish enough to think that they can consistently outsmart the market.”
– John Bogle, father of index investing
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