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Fire Your Broker and Earn 25% Higher Returns

Do you know how much money your 401(k) is costing you?

If you’re like most Americans, this might seem like an unusual question. Most of us associate investment accounts with making money, not spending it.

The fact is: your IRA or 401(k) is a financial product. And just like any product in the market – from milk to a Lexus – there’s a price tag. And you may be paying much more than you’d expect to fund your retirement.

Financial products are paid in fees. For example, loans charge interest. Even free checking accounts make money on overdraft fees.

Of course, it’s easy to understand your mortgage statement. You owe an amount in principal and another amount in interest. And if you make the minimum payment, you can expect to pay off your loan on a specific date.

It’s not so simple to understand a 401(k) plan. An AARP survey [1] showed that 65% of 401(k) contributors were completely unaware they were paying fees to begin with.

Perhaps one reason is because financial service providers don’t post fee information in the expected places. 401(k) fees come “off the top,” which means they aren’t documented in your monthly statement.

You’ll have to dig a little bit deeper if you want to find out what is really stunting the growth of your nest egg. A good place to start is by requesting a “fee audit” from your company’s 401(k) plan administrator.

Buyer beware: If you’ve ever felt like your 401(k) should be making more than it actually is, that’s a red-flag that you’re paying too much in fees.

Here’s what you need to watch out for…

3 fees that can shred your 401(k) returns

Below are the three most common fees that brokers charge. These are only the basic fees, but some plans charge “advertising & marketing fees” as well as others. As you’ll see, some fees are necessary. Others exist for the sole purpose of making the financial service industry more money while draining your retirement.

Fee #1: Administrative Fees

Every company has overhead expenses such as office management, book keeping, and customer service. And mutual funds are no exception.

These fees generally range from .2% to .4% annually. [2]

Administrative fees are unavoidable because without capital an investment fund can’t keep operating. And since most brokers don’t invest in their own funds (more on that below), they aren’t making money off their own investments.

Even the lowest fee funds will assess some administrative costs. Though, you’ll want to make sure you’re not paying more than you have to.

So far, no real harm. Fund managers and their employees have to make a living too, right?

As it turns out, administrative fees aren’t the only way funds cover payroll. And it’s the next type that really starts killing your returns…

Fee #2: Asset Management Fees

In active professionally managed funds, investment researchers and broker-dealers make some of their money through asset management fees. Many brokers also receive commissions from companies whose stock they recommend to clients (more on that below…)

Asset Management Fees generally range from .5% to 1% annually. [2]

That sounds like a small amount. How much of a difference could half a percent really make?

Let’s take the median Administration Fee (.3%) and add the median Asset Management Fee (.75%) and add them together. That’s 1.05%. Now let’s compare returns over thirty years with and without the asset management fees.

Let’s say, for argument’s sake, that you and your employer are contributing $7,500 of your paycheck to retirement yearly.

With an average annual fund return of 7% and an initial investment of $50,000…

With Asset Management Fees, you’d earn:

Yr 1 – $50,000                       Yr 5 – $111,503         Yr 10 – $193,613       Yr 15 – $303,237

Yr 20 – $449,592                   Yr 25- $644,987        Yr 30 – $905,853  

Now look at the SAME portfolio without Asset Management Fees:

Yr 1 – $50,000                       Yr 5 – $114,896         Yr 10 – $204,646      Yr 15 – $328,771

Yr 20 – $500,436                   Yr 25 – $737,849       Yr 30 – $1,066,193

Do the math: that’s $160,340 in extra fees.

Now, you may be thinking: “OK, but don’t I need a professionally managed portfolio to get the best rates of return?” It’s a good question, because high enough returns could outweigh the cost of fees.

But the surprising answer is “NO.” For reasons you’ll soon understand, actively managed portfolios almost NEVER consistently beat the market with a large enough margin to justify the fees. That’s almost always true, even when your employer is chipping in with a matching contribution.

But Wall Street can’t make money by encouraging you to put your money into safe investments with modest, consistent returns.

No one makes much money on index funds, where rates of return are based on the average growth of an entire market (like the S&P 500 companies). There’s no risky betting involved there. Either the average of the S&P companies grows from last quarter, or it doesn’t. And since the larger market almost always grows over time, putting your money in an index fund is a relatively safe move. And the fees are low, which means an affordable investment for you.

But most brokers would have you think otherwise…

Fee #3: Trading Fees

Here’s how the investment slaughter house goes in for the kill.

Trading fees are charged each time your broker buys and sells the securities (e.g. stocks and bonds) in your fund. Actual fee amounts vary from broker to broker. All told, it’s not unusual for fees to exceed 1.6%

How does your broker know when and which stocks to buy and sell? Well, that depends on who you ask.

Brokers are quick to make the argument that experience and knowledge of the markets puts them at an advantage to earn you the highest possible returns.

But that explanation doesn’t exactly hold water.

While it’s true that individual investors are less likely to beat the market than professional traders, professional traders are less likely to beat non-managed funds.

According to the S&P Indices Verses Active (SPIVA) scorecard, non-managed funds outperform actively managed funds most of the time. [3] That means that a professional investor has little chance of beating the market during any given year, much less year after year.

And there’s something else your broker doesn’t want you to know. Client fees aren’t the only way to get paid as a broker-dealer. Another way is to earn commissions from the publically traded companies they recommend.

Just as drug companies solicit medical doctors to proscribe their medications, publically traded companies are competing for your mutual fund dollars. And your broker is forced into a situation where he (or she) cannot represent your best interests.

Unlike a financial advisor who has a legal fiduciary duty to act in your best interests, most broker-dealers are salespeople who profit from selling stocks that pay the highest commissions.

So, Exactly How Much Can Your Broker Take?

Let’s run our 30-year experiment again, this time comparing an actively managed fund with Asset Management and Trading Fees versus a low-cost index fund.

Actively managed fund with 1.6% fees:

Yr 1 – $50,000                       Yr 5 – $109,069         Yr 10 – $185,906      Yr 15 – $285,852

Yr 20 – $415,861                   Yr 25 – $584,973       Yr 30 – $804,950

Passive index fund with .3% fees:

Yr 1 – $50,000                       Yr 5 – $114,896         Yr 10 – $204,646      Yr 15 – $328,771

Yr 20 – $500,436                   Yr 25 – $737,849       Yr 30 – $1,066,193

For a whopping total of: $261,243 in fees, or 25% lost returns!

[1]  http://assets.aarp.org/rgcenter/econ/401k_fees.pdf

[2] http://www.demos.org/publication/retirement-savings-drain-hidden-excessive-costs-401ks

[3] http://us.spindices.com/indices/strategy/sp-500-high-beta-index

3 Guaranteed Ways to Lose Business Assets

3 Guaranteed Ways to Lose (Almost) All of Your Business Assets…

Welcome to the 21st century.

We have fully entered an Age of Information, where almost anything that can be found in terms of information on a subject, can be found.

Knowledge Is Power Harbor InstituteThat includes all information about your business, including some information you might not have considered.

This information gives you power as a small business owner, but also gives people power to voice their opinions and use the Internet to find information to use against you.

Also, not all information is quality (or correct) information, which can lead to some bad decisions.

This new access to information is the leverage that makes the following even more possible…

Here are 3 ways to put your business on the short path to “closing up shop”…

You wouldn’t want to close your business because of something you hadn’t prepared for, at least in most cases.

That said it’s unfortunate that a good number of small business owners still leave their businesses wide open to the potential for closing early in 3 overlooked ways.

Here they are in no particular order:

  • Losing a lawsuit, no matter how crazy it might seem.

Information, and the ability to publish it online, provides people with an enormous amount of power.  If someone doesn’t like something about your business, they can publish a review, start a blog, or even go to the press and spread their opinion.

This can even happen even if you seemingly did little or nothing wrong.

But even worse, someone can file a lawsuit against your business in our highly litigious society.  And even if the reason for filing a lawsuit isn’t totally sound, the time, resources and legal representation you need to devote to any lawsuit can be expensive.

It can put you out of business if you’re not prepared.  There are ways to protect your personal and business assets from legal action, and we cover some of those in a special report we offer for free (see the end of this article).

  • Bad investment decisions and lack of capital.

Money talks and B.S. walks.

It’s cliché, but it’s true … if your business lacks proper operating capital for payroll, inventory, marketing etc… then it’s as good as dead.

But worse, if you make a bad investment decision, you might have to close up shop just to recover from the financial setback.  Make a poor real-estate investment decision; suffer a lawsuit as a result of being “in the wrong place at the wrong time,” etc…

Any number of possibilities exists for a bad money situation.  But the good news is there are ways to keep you safe.  Some common strategies rely on incorporation of your business, general money management or investment strategy, or the structure of your personal and business assets.

The type of general advice you can find from sites like Fidelity, CNN Money, and others is fine, for covering the basics.

As you’ll soon see in our latest report … sometimes the basics don’t cover what you need.

  • The I.R.S. and having a poor tax strategy.

And then there’s the I.R.S. … the one entity that can either make your business and personal life a living hell, or, because of certain protection loopholes in the tax code … give you the leverage you need to pay only the taxes that you should be.

It all relies on the tax strategy for your business.

It’s said there are two tax systems in our country.

“In America, there are two tax systems: one for the informed and one for the uninformed. Both are legal” — Billings Learned Hand

Which system do you want to use?

How to protect yourself, your business, and your income…

Obviously, having the proper guidance and advice when it comes to protecting and growing your business and personal assets is a large and complex topic for just one article.

Which is why in this particular case, I’m going to ask you to download one of our reports and look into two key strategies we call the “C-Vault” and “S-Vault” protection strategies.

Here is an excerpt from the report…

It’s not just a “sue happy” customer, a disgruntled employee, or an ex-spouse
that is putting your business and personal assets at risk anymore.

Nefarious entities now troll the Internet looking for successful people to exploit.
With those concerns in mind, we offer two solutions worth your consideration.

These solutions are a series of layered corporate structures that legally provide
small business owners, and their loved ones, with same sophisticated layers of
protection usually enjoyed only by the mega-rich.

Keep in mind, the following report only represents a small sliver of the immense volume of tactics, strategies, and business asset-securing knowledge we offer to our Members.

But by downloading it today, you can get an inside look at the same wealth strategies the uber-wealthy use to grow their businesses, protect their companies, and secure their financial future.


Want more?  Start with our newest report, The Elite “Fort Knox” Strategy, part of our Small Business Elite Protection Library … where we reveal the detailed model for keeping more business revenue while paying fewer taxes, and making all of those assets as “bullet-proof” and secure as possible … plus a whole lot more…

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