The past weeks we have been talking about investing, today we will talk about the fees you are most likely paying and how to keep most of that money in your pocket instead!

Have you ever considered having a Portfolio Manager? If you haven’t in many cases it has been forced upon you, either because you have some kind of fund that manages the money you have invested or because “the only way” you can make any movement in your investment account is through a representative of the bank.

Mutual funds in 401k’s are the big trend now and it seems as if everyone is doing this kind of investment, while the product is legitimate and gives somewhat of a solution to the Social Security debacle, it also presents a big problem for anyone that is not aware of the costs involved, margins look great on paper but don’t convert that way in reality.

Typically, a mutual fund will send a prospectus where you can see the expense ratio; anyone would think this is the only cost to you as an investor to upkeep the mutual fund, however, there are other expenses that are not revealed to you unless requested. Some of these expenses are brokerage commissions, turnover, market impact cost, spread cost, amongst others that in some cases double the expense ratio, making the cost of that mutual fund threefold of what they disclosed to you. A money-conscious investor like you, should be aware of this and factor it in when calculating their ROI.

While any hands-off investment has a cost, which would you prefer: lower cap rate and higher fees or higher cap rate and lower fees? We think the answer is pretty clear.

Using only the expense ratio disclosed to you at the time of buying into a mutual fund, we built the following graph so that you can determine who is the clear winner:

This is just considering what they disclosed to you, once we factor in other fees it gets even worse… Did you know that the mutual fund is not obligated to invest all of your money, they can hold a portion in cash… and they do! In order to keep some liquidity in case there are any owner redemptions there is a portion of the portfolio that is kept in cash, however, your fees are based on the total amount of your asset regardless of how much of your portfolio is actually invested and how much is held in cash. This concept is called Cash Drag. If we add up all the “secret” fees involved, it can sum up to be a total of 4.17% (on average) of your total asset on average per year, pretty different than that 0.9% you see as expense ratio in the prospectus. As an example, if you have $40,000 invested at a promised 10% return that would net you close to $94,000, however, reality is you are actually at the $60,000 mark, what could you have done with the extra $34,000 dollars? Were you even aware this is the real projection of your investment?

Let’s look at the promised growth of your asset in a mutual fund and compare it to the real growth once we factor in all the fees both disclosed and non-disclosed ones in the following graph:

The question is, why are you working with people that don’t want to disclose the operating costs of working with them is? Why is your retirement in their hands? And even more importantly what kind of significant contribution to humanity are you doing in the meantime?

Want to have a better and more honest investment? set appointment here

I want to thank you for reading this letter and want to give you an invitation:If helping stabilize and strengthen the family unit is something that interests you, and you want to create financial stability for you and your family, please reach out to us. You can do it either with your money, with your time, or with both. We will be glad to join forces to make a difference in the world together with YOU.

Want to have a better and more honest investment? Again, set appointment here

Ivan Anz
Equity & Help Founder