Why Sabotage your Retirement?
There are five destroyers of wealth.
So if we know these five exist that eat away our gains and slow our progress, then we know where not to invest. Debt and procrastination are personal things but the other three can be avoided. The typical vehicle most people use are mutual funds. There are now more mutual funds than there are stocks on the exchanges so one has to ask why. This is because of the tremendous money that is harvested off of them by greedy financial institutions.
How do fund expenses affect you? Well, with the expense ratio, which averages 1.6% per year, sales charges of 0.5%, turnover generated portfolio transactions costs of 0.7% and opportunity costs of 0.3%—when funds hold cash rather than remain fully invested in stocks— the average mutual fund investor loses 3.1% of their investment returns every year just on fees. While this might not seem like much on the surface, costs and fees alone could consume 31% of a 10% market return. Think about that. You could be losing almost a third of your return before it’s even taxed. You’re losing a third of your return just for the cost of maintaining your investment. Add in the 1.5% capital gains tax bill that the average fund investor pays each year and that figure shoots up to 46% of your return being lost to fees and expenses, nearly half of a potential 10% return. When you hear that, don’t you feel like you’re taking one or two steps back instead of going forward?
Taking what we now know, the best place to avoid expenses would be an index fund but if we buy the index inside a life insurance chassis, then we can eliminate the taxes under the Internal Revenue Code Section 7702 which allows tax-free build-up and tax-free distributions back to yourself because it is characterized as a loan. Now that we’ve eliminated two more destroyers the only one is inflation. As long as you can earn an internal rate or return that out paces the 3% of inflation which is possible when you have the right product you can eliminate all 5 destroyers of wealth and get so much further ahead.