"John Bogle on why your retirement plan stinks"

"As Vanguard founder John Bogle pointed out in a recent discussion with analysts, ...Fees easily wipe out a huge portion of the yield on stocks, he said, more than 63% for your money.

Fees are fixed costs that are consciously structured to suck money from your accounts, regardless of performance.

...If stock dividends average 1.9% and the average mutual fund charges its investors 1.2%, then the investor is left with just 0.7% in net yield to reinvest. "We eat up all of our dividends with stock expenses," Bogle said... And the "industry you could easily say doesn't give a damn."

...Since most managers can't beat the market after deducting their fees, your best shot at retiring well is to secure a market return and consistently reinvest the dividends.

Assume for a moment ...Your investments are flat for 12 months straight. In reality, you did collect income. In a straight Standard & Poor’s 500 Index SPX, -0.14%  investment, that's the 1.9% dividend yield Bogle explained.

The other certainty, then, is the fees. Subtract those and you're down to 0.7%. It isn't a maybe. Brokerage-based investment advisers and mutual fund managers will take their cut in fees regardless of performance. You can count on that.

...Imagine that a $10,000 investment to which you add $10,000 a year for three decades grows at 1.9% — just the dividend yield gets reinvested, so we're not counting appreciation for the moment. At the end of 30 years, then, you should have $424,564.

If instead you reinvest 0.7% (which is what really happens to many folks), your return over those years comes to $347,192. You get $77,372 less of the money you earned over the years.

All of that cash goes to the managers.

...That money flows just one way, by design — out of your plan and into the pocket of a broker."


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