Written by Jimmy Becker

Don’t eat the parfait

When it comes to your savings, small fees have big effects.

In a Bloomberg article, Noah Smith explained How Wall Street Gets Rich off Savers. He referred to the various layers in the financial services industry as a “parfait” of fees. It is an apt metaphor. These fees are costly and even a “small” expense of 1% per year is substantial over a lifetime of savings.

How costly? To keep it simple, I’ll assume you diligently save for your retirement on a regular basis and that you will earn an average return of 6% per year over your lifetime before incurring any fees. Expenses of just 1% per year going to mutual funds, financial advisors, sub-advisors, 401K plans, commissions, trading spreads, or anywhere else, will turn out to be much more over time.

How does 1% become 27%? After 20 years, these fees have eroded 10% of your savings and after 50 years of savings, you’ve given up 27% of the wealth that you otherwise would have accumulated. No one is more clever than the financial services industry in how they extract these hidden fees. You’ll never know it happened.

Don’t eat the parfait that Wall Street is serving as it will turn out to have been a very costly dessert.

To learn more about how to minimize your investment fees and maximize your returns, get in touch.

Not a subscriber? Sign up for my newsletter here.