Avoid This $250K Investing Retirement Mistake (And What to do About it)


in this video I’m gonna talk about a
common investing mistake that a lot of us are making that can actually cost you
about $250,000 dollars or more when you retire I’ll
also cover a few other strategies that will help your retirement grow so
definitely watch this video and hopefully you’ll learn something new now
if you just found this channel I’m Jason with honest finance and I make a lot of
videos on different topics that’ll give your life and your finances more value
so feel free to subscribe if you guys like this type of content or just give
this video a like but now let’s start talking about your
retirement before I tell you how you can easily lose two hundred and fifty grand
I first want to tell you a story about how I found out about it first so just
be patient so a few years ago I was looking at my retirement account and I
realized that the returns that I had been getting had actually been about
three percent lower than what the S&P 500 had been doing on its own and this
was really odd to me because the market had actually been doing about 12% every
year at the time and I was about 3% lower than that so I was wondering what
the heck was going on I had one of those target accounts where you just set the
year that you plan on retiring and then they do the rest it’s a really easy
approach for most investors because they do all the work for you and then you
don’t have to think about it until you retire now I’m not against target funds
at all but the common mistake that I found with most investments is called
your expense ratio which is how much you have to pay for the assets and it can be
very expensive if you don’t pay attention to it I found out that my
expense ratio for the target fund was 1.8 percent and that’s what they were
charging me for my assets every single year and that’s so expensive so even if
you make a bunch of money or you lose a bunch of money you still have to pay the
stupid expense ratio every single year on all the assets that you have and then
on top of the expense ratio I also noticed that the fund itself wasn’t even
performing as well as the S&P 500 so not only did I lose 1.8% because of the
stupid expense ratio but I also lost out on even more games because the account
manager didn’t put the money in the right assets
I had my account open for about five years before I realized there was even
an issue and once I did see the problem I moved all of the assets into cheap
index funds the reason I’m telling you this story is because how many of us out
there have accounts that have been open for 10 plus years and we have no idea
what the returns have been or how much the expense ratio is costing us I
thought I could trust the target fund and the company I was
with and that’s why I never checked it for five years but it turns out that
that was a really big mistake I learned my lesson from all of this stuff and
that’s why I want to pass on this information to you in a way that makes
sense so that you don’t make the same mistakes that I did the financial
industry makes a lot of money from their complex strategies because consumers
don’t generally understand what’s going on and therefore we trust them to do it
and then they make all the money and we lose out and it’s totally smart on there
and because statistically how often do you ever switch insurance or investment
accounts I bet the answer is that you hardly ever switch companies because
it’s always confusing and it takes a lot of research and a lot of effort to make
it happen and that’s exactly what these companies understand because they know
that you’re most likely never going to switch accounts and so they just collect
all the fees and then you end up losing in the long run expense ratios are found
with your financial advisers mutual funds 401ks ETFs all that kind of stuff
basically any fund with multiple assets is going to have an expense ratio but
the problem is is that sometimes the expense ratio is way more for other
companies for the exact same assets it’s kind of like Costco and Best Buy selling
the same TV for different prices you’d obviously go for the cheaper one if they
were identical which is how it is in the normal market but the problem is is that
for most consumers it’s not that way when it comes to investing because all
of this has to do with who you’re investing with which I’ll talk about in
a minute now I’ll explain how the expense ratio can end up costing you 250
grand when you retire so pay attention here and thank you for being patient to
keep the math simple let’s say that you start investing when you’re 25 years old
and you end up putting 250 bucks a month into an account every single month for
the next 35 years and it never changes for most of us are gonna end up
investing more when you make more money but just to illustrate this easily I’m
just keeping the math as simple as I can now let’s pretend that the whole time
you have this money invested that you’re paying 1.5 percent to an expense ratio
and then the market average is 10% and returns the entire time as well so with
this basic math and a 1.5 percent expense ratio you’re gonna end up with
six hundred nine thousand dollars when you retire which sounds pretty good but
if you didn’t have an expense ratio the entire time you’d actually end up with
eight hundred and sixty-four thousand dollars which is almost 250 grand more
the reason that 1.5% totally destroyed your account is because
all of that extra money could have been compounding for you over the years
except it wasn’t instead of all that money working for you the entire time it
just ended up working for the investment firm which is definitely not in your
best interest now just imagine that you put way more money into your account
over the years or you started investing even earlier in these cases that stupid
expense ratio could actually cost you over a half a million dollars which is
way too much money now here are some easy solutions you can do right now to
stop the expense ratios from hurting your retirement account any further the
first thing you need to do is to obviously find out how much your expense
ratios are costing you so find that out first then once you’ve figured out how
much your expense ratios are compare your actual returns to the S&P 500’s
returns for the same years because if the S&P 500 went up 12% last year but
you went up 15% with the 2% expense ratio then it’s still better for you to
have that fee but 95% of the time this is not gonna happen because usually your
account is just gonna match the sp500 or can do even worse now once you’ve got
these numbers I want you to look inside your own company that’s funding the
account and find out if they have any cheap index funds because that’s what I
want you to move everything into now if you do all the research with the company
or with and you realize that they don’t have any index funds with cheap expense
ratios then you’re gonna want to migrate your funds to someone who does and if
you don’t know what low-cost index funds are don’t worry because I’ll explain
what they are in a minute but for right now let’s talk about my recommendations
of where you should move your money if you need to for starters I’d recommend
looking at the company betterment if you want fully automated managed funds
because their expense ratio is only 0.25 percent which is so cheap because they
manage all your money with computer algorithms they don’t have to pay their
advisors with all those stupid fees that I’ve been talking about your money will
be allocated into low-cost index funds which is what I recommend you do anyway
but the cool thing about betterment is that they’re gonna help you choose which
funds to invest in they’ve got all different types of accounts to choose
from that are fully automated to meet your specific goals and your needs just
depending on what you’re looking for so if you’re the type of investor that just
wants somebody else to do the work for you then I’d recommend looking into
betterment because they can do it fully automated with very low fees now I’ll
leave an affiliate link in the description below which means I may be
compensated if you click through it but just keep in mind that betterment is a
very good investment option and never gonna recommend something that I
don’t think is the best option for you guys now if you’re the type that likes
to manage your own funds then I’d recommend just sticking with cheap index
funds because that’s the best way to go for your retirement account index funds
are just groups of assets that are mainly made up of predetermined
equations and that’s all there is to them so the S&P 500 index for example is
just the top 500 US companies based on their market cap and that’s what makes
up the index and big index funds like the S&P 500 and the Dow Jones are always
going to be your target goals for all of your returns and that’s because they’re
made up of so many top companies that it actually controls a large portion of the
US stock market now because a lot of these big indexes don’t require a lot to
manage they’re considered low costs simply because of the fact that their
expense ratios are extremely low just make sure to invest with the most
affordable brokerages because at the end of the day they’re gonna have the best
expense ratios so if you want very affordable index funds then I definitely
go with Charles Schwab or Vanguard because they have some of the lowest
expense ratios in the entire industry they’ve got a million products to choose
from and they’ll always be the cheapest if you like to manage funds yourself now
we’ll cover a few other things that’ll help your retirement grow as well
because I want you to maximize even more than just your expense ratios and if you
have made it this far into the video could you please comment down below and
say I’m still watching that way I can tell who’s still interested in the video
Thanks the first thing you can do to help your retirement grow is to start
investing as young as possible because that is gonna make a huge difference in
the long run now obviously you’ll have a lot more money if you start saving up
for retirement when you’re younger but the really big thing is is that you’ll
actually double your money every 7 years with just 10% returns so if you gave
your retirement another 7 years to grow then that would actually mean that 1
million dollars could be 2 million dollars just because of all that extra
time so just make sure to start investing when you’re as young as
possible because every single one of those years is going to end up making a
huge difference in the long run and another thing you can do to help your
retirement grow is if your company offers a 401k match then I would
definitely be taking a hundred percent advantage of it because it is free money
and in this case I don’t care how much your expense ratios cost for your 401k
match because remember that every 7 years your money doubles and this is
doubling in an instant so if your company offers a 5 percent match then at
least invest 5% even if it’s a struggle because at the end of
the day that 5% match is a 100% return on your money and that is too good to
pass up and whenever you do get a raise I would
highly suggest that you up your retirement contributions by just 1%
because that’s gonna make a huge difference over the long run because if
you’re already increasing your wages when you get a raise then 1% isn’t gonna
feel like a big deal at all when you up your contributions you really want to
end up with about 15% of your income going towards retirement and sometimes
the only way to do that is just to have little 1% increments here and there
because that’s gonna make the difference and then lastly if you’re investing
anything for your retirement just make sure that it’s in a tax-free account
like an IRA or a Roth IRA because what’s the point in paying taxes if you don’t
have to because at the end of the day you’re still gonna have to pay taxes on
your dividends and your capital gains so you might as well have those working for
you over the long run for your retirement tax sheltered accounts all
have their yearly limits so just make sure that you can take full advantage
for what you can do and that’s gonna benefit you the most and personally I
like to go with Roth IRAs because you’re gonna pay your taxes now and then when
you retire you don’t have to worry about the taxes at all
because honestly I really don’t think the tax brackets are gonna go down by
the time I retire so I’d rather just pay the taxes now and then not have to worry
about it when I retire now I am NOT a financial adviser so take all of this
advice for entertainment purposes only but if you guys do get one thing out of
this video just make sure that you pay attention to your expense ratios and do
something about them so they don’t hurt your retirement any further there are
plenty of companies out there that have extremely low expense ratio so what I
want you to do is just find out how much you’re paying and your current expense
ratios and then move those accounts over if you have to because that is going to
benefit you starting right now once again I’m Jason with honest finance
and I make a lot of videos on different topics that’ll give your life and your
finances more value so feel free to subscribe if you guys want to or just
give this video a like and that’s all

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