003 | Why Investment Fees Are Evil and How to Avoid Them

ChooseFI | Financial Independence Podcast

Jonathan Mendonsa & Brad Barrett | Choose FI Media, Inc

Careers, Investing, Business

4.8 • 5.2K Ratings

🗓️ 23 December 2016

⏱️ 18 minutes

🔗️ Recording | iTunes | RSS

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Summary

You've been told to buy and hold, but here's the truth: sitting still could cost you over a million dollars. Brad and Jonathan break down how investment fees — the ones you probably didn't even know you were paying — quietly drain hundreds of thousands from your retirement. Understanding and minimizing investment fees is critical for building long-term wealth. The discussion reveals that many investors unknowingly participate in high-cost mutual funds or hire financial advisors who underperform compared to low-cost index funds. By using a VTSAX investment strategy, investors can potentially compound their returns significantly over 40 years. Brad and Jonathan share potential earnings scenarios comparing various investment approaches, illustrating how seemingly small fees can lead to substantial losses in future earnings. The episode emphasizes the psychological benefits of investing with low fees, promoting peace of mind and a straightforward investment strategy. Listeners are encouraged to evaluate their current expense ratios and consider the impact of fees on their investment growth. Key Topics Investment Fee Awareness: Understanding and minimizing investment fees are crucial for building long-term wealth. Costly Decisions: High-cost mutual funds and financial advisors can negatively impact returns significantly over time. VTSAX Advantage: Investing in low-cost index funds like VTSAX can lead to better financial outcomes. Psychological Benefits: Low fees promote peace of mind and a straightforward investment strategy. Chapters [00:00:43] Introduction to Investment Fees [00:02:01] Importance of Index Funds [00:05:51] Investment Scenarios Calculation [00:11:21] Long-term Wealth Comparison [00:12:36] Final Thoughts on Fees Action Items Evaluate the expense ratios of your current investments [00:16:04] Consider switching to low-cost index funds like VTSAX [00:12:11] Evaluate whether your financial advisor's fees are justified [00:09:54] Key Quotes "High-cost funds destroy your wealth." [00:02:41] "Brilliant financial advisors are rare." [00:04:59] "VTSAX shows substantial long-term growth." [00:05:51] "One small change can cost you $630,000." [00:09:22] "Seemingly small fees can cost you $1.1 million." [00:11:21] Related Resources The Simple Path to Wealth by Jim Collins [00:03:29] Episode 2: The Simple Path to Wealth [00:03:29] ▶ Listen Next: Ep. 004 — Paying Off $168K in Student Loan Debt: Jonathan's Origin Story | Essential Listening

Transcript

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0:00.0	Welcome to the ChooseFi radio podcast episode three. It's time to talk about the fees
0:15.4	If you're looking to unlock the secrets to financial independence and early retirement
0:20.4	You're in the right place. Stay tuned and join a community of like-minded people who are getting off the Amsterdam's for real and taking the toll of their lives
0:29.1	in the pursuit of financial independence choose FI your home for financial independence on right
0:42.9	So today we're in the studio and we are going to be specifically talking about a topic that is very important to most of the financial
0:50.4	Independent retirement early community and that is the importance of avoiding
0:54.6	excessive fees. It is such a fundamental topic and yeah
0:58.8	We wanted to make one of our very first podcasts about this
1:01.4	So we're gonna do one of the things that you're supposed to avoid at all cost on a
1:05.8	Podcast and that is talk about numbers and on this particular show we're gonna violate that rule a lot
1:11.6	Hopefully this works out. We'll see. I think it'll work out really well. We're gonna cross some bridges here grad
1:16.0	You just want to kick this thing off and let us know what Tiffany. Yeah, for sure
1:19.1	So pretty much like everybody else. I'm an investing moron
1:22.8	I had no idea what I was doing for years and years and years you sign up for your 401k
1:27.4	You get this list of 20 or 30 mutual funds and you have no idea what you're looking at right?
1:32.6	What do you do when you look at it, John?
1:34.0	You know, it really is difficult to dig down in there and figure out exactly what you're looking at and even to know
1:38.9	How you're supposed to look at it. So I think a lot of us just kind of ask our peers or maybe we do a Google about the top five
1:45.5	Funds something like that. Yeah, that's the two things I think most people do are ask the guy in the the cubicle next to them
1:52.1	and look at the morning star ratings and how many stars did morning star give it for its performance over the last year?
1:58.5	Oh, so that's not what you do
2:00.9	Well, thankfully, thankfully I've kind of come to a conclusion here and on the backs of many many brilliant people
	...

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