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