4 ms·
Exactly. ETFs, Index Funds, etc. Besides, how did they get 2/3 anyways? If I make 7% and 2% goes to someone else, I'm still left with 5%. 5% > 2%. So how does
by wheaties 13y ago
Exactly. ETFs, Index Funds, etc.
Besides, how did they get 2/3 anyways? If I make 7% and 2% goes to someone else, I'm still left with 5%. 5% > 2%. So how does that 2% translate into 66.7%?
- jimbobob 13y agoThe 2% compounds over time. There is a far greater opportunity cost to losing 2% of earnings in year 1, as that amount reinvested at 7% over a 20 or 30-year period is quite significant.
- EricDeb 13y agoI'm going to take a quick stab and say it might be due to the compounding gains lost by forfeiting 2% year over year. To elaborate, when you lose 2% of 7% the very first year you invest, that 2% could have compounded over your entire working career.
- greedo 13y agoIf you follow the link to the financial calculator mentioned in the article, it's pretty simple. http://www.math.com/students/calculators/source/compound.htm http://www.math.com/students/calculators/source/compound.htm For example, if you invest $100 for 50 years at 7%, at the end of the 50 years you have $3278.04. If you invest into a fund that nominally returns 7%, but charges a 2% fee, your net increase is 5%. If you invest $100 for 50 years at 7%, at the end of the 50 years you have $1211.93. 1211.94/3278.04 = 36.97% Not quite 1/3rd, but close enough for government work. So for the average person who blindly shotguns their 401K selections without considering expense ratios, there are many fund managers living in the Hamptons.