Warning: Your Investment Return May be Much Lower Than You Thought

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Warning: Your Investment Return May be Much Lower Than You Thought
By Jeff Mitchell/ Smart Insights From Proffessional Advisors/ Kiplinger/ kiplinger.com

"Investment return isn't always what it's cracked up to be. When you break it down, a 7% guaranteed investment return may end up being more like 2.4%.

The smartest investors I know don’t worry about asking what may seem like stupid questions.

After all, putting your hard-earned dollars into an investment isn’t the same as simply stashing it away in a checking or savings account. There are risks involved, and you should know what you’re getting for your money.

Sometimes, when you hear an investment will earn a certain rate of return — whether it’s 5% or 6% or even 10% — you aren’t necessarily getting the whole picture. You need to be prepared to challenge that number and to ask questions that will determine the true bottom line.

For instance, if you’re told an investment will get you a 5% return on your money, you might think it means that if you put in $100,000, at the end of the year you’ll have $105,000. Seems like simple math. But what if the financial professional proposing that product charges an annual fee of 1.5%? Then the net to you is really only 3.5%. And what if the investment has an internal fee? Then your net is even less.

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Richard

 

[pedro47]

Hidden fees or unknown fees will always bring down your total investments. Please check your statements on a regular basis.

 

[WinniWoman]

For sure. And within 401K's it's even worse.

 

[ScottRW]

Sometimes, when you hear an investment will earn a certain rate of return — whether it’s 5% or 6% or even 10% — you aren’t necessarily getting the whole picture. You need to be prepared to challenge that number and to ask questions that will determine the true bottom line.

For instance, if you’re told an investment will get you a 5% return on your money, you might think it means that if you put in $100,000, at the end of the year you’ll have $105,000. Seems like simple math. But what if the financial professional proposing that product charges an annual fee of 1.5%? Then the net to you is really only 3.5%. And what if the investment has an internal fee? Then your net is even less.

Have you tried and checked that all ... on your own?

 

[geekette]

For sure. And within 401K's it's even worse.

Not sure about all investments, but a rule went into play sometime back where the 401k had to disclose, at least annually, fees charged per fund. I think it was an eye-opener for employees-as-investors. It was info that should have always been front and center, but generally fine print is fine for a reason - keep the consumer in the dark.

I no longer have an active 401k, but I'm curious for those that do, with the trade platform attached - are you still charged trading fees? Mine were $15 so I did not activate trade portion, because there was also a quarterly fee to have the option (another $15). Those fees need to be gone. People don't think about how much of their money is getting sliced off to feed the broker. "Only 15 bucks" seems easy to swallow in abstract.

The nice thing about ETFs vs traditional mutual funds are lower fees. I would hope that trade fees for those are also gone, that would be fantastic.

Not sure load funds are still around. I steered well clear of those. I am not paying an entrance nor exit fee. Not ever.

 

[DrQ]

One of the BIG areas for investment hidden fees are annuities.

 

[ScottRW]

When I was trying to start and create my business in Europe, maybe the hardest part was making Estonia Licenses, because they have some restrictions and specifics for US citizens, as I understood their laws. But a third party firm helped me, and made all the official papers for 3 business days only. It's great when you have some services on distance, which can help with local papers.