medical student loan refinancingMy monthly column in ACEP Now is entitled “Avoid Paying Too Much For Financial Advice.” They decided not to go with my slightly more provocative suggested title, “The Rent is Too Damn High.” While little in it will be news for those who have been reading this blog for years, it is likely to cause most of those who read it to wonder if they’re paying a fair price for their financial advice.

In 2010, a former postal worker, Jimmy McMillan, famously ran for Governor of New York on the slogan, “The rent is too damn high!” That slogan can also be applied to the price most physicians are paying for financial advice. When it comes to investing, unlike with most things in life, you get (to keep) what you don’t pay for. Advisory and management fees come directly out of your investment return. Therefore, your goal should be to pay the least amount possible for good financial planning advice and quality asset management.

Insuring-Income-250x250-bannerJack Bogle, the founder of Vanguard, has said, “The long-term investor must be aware of the portion of investment return that will be consumed by [investment] expenses. Cost lops the same number of percentage points off both nominal and real [after-inflation] returns, but given persistent inflation, it nearly always consumes a proportionally larger share of real returns. To state the obvious, the long-term investor who pays the least has the greatest opportunity to earn most of the real return provided by the stock market.”

ACEP NOW ImageConsider two investors who each contribute $50,000 in the same investment, which returns 9 percent per year—before expenses—over 30 years. The first pays 0.1 percent in annual expenses. The second pays 2 percent in annual expenses. After 30 years, the first has $6 million. The second ends up with $4.2 million—30 percent less. Bogle refers to this phenomenon as the “tyranny of compounding.” Just like the “magic of compounding,” where small differences in return can result in a vast difference in wealth over many years, with the tyranny of compounding, small differences in expenses can also result in a monstrous loss of wealth.

Read the rest of the article here, then come back and tell me what you thought.