How I Made $60k. With One Simple Decision. (Anyone Can Do This Too)

This discovery applies to all stock market investments

Investments. They were all a mystery to me.

Pensions. Stocks. Shares. All too complicated. Felt it’d be too costly if I got it wrong. Thought it was best left to the experts.

Until discovered my ignorance was losing me $10,000's.

My journey to enlightenment was triggered by an innocent conversation with my mum. She showed me her latest investment statement. I looked closely and nearly fell off my chair.

Her costs were shackling her financial growth.

How to save a fortune

My mum had platform fees, advisor fees, and fund fees. Adding up to 2.5% of her fund. She had to pay this every year.

That’s $10,000’s she was losing from her investments.

Were these costs necessary? I decided to investigate.

What I discovered changed my financial life. And might do the same for you.

Understanding the 2 investment options

You can invest in funds or invest in specific companies.

Investing in a company is very risky. What if the company goes bust? You lose all your money. So we will focus on funds.

A fund means you invest a small amount in lots of different companies. This reduces your risk a lot.

There are 2 types of funds you can invest in.

Active funds — run by experts who pick the stocks they think will do well based on their knowledge/research. These cost you a lot more to invest in. You are paying for expertise.

Passive funds (index funds)— these make no attempt to predict who will do well. Instead they buy a bit of lots of companies. They aim to reflect the whole market. This can be a specific country (US or Japan), a region (Europe) or even the whole world. They don’t attempt to respond to the market. They just follow the market.

When I compared these 2 options I uncovered 2 shocking facts:

1. You can save a lot of money with a passive fund

There is a big difference in cost between an active and passive fund.

With active funds you pay for the expertise of the fund manager. Costs vary but you could 1.5% of your fund value every year. If you invest £10,000 you pay £150.

A passive index fund is much cheaper and will cost you about 0.2%/year. $20 for a $10,000 investment.

This means if an professional investor charges you 1% more then they need to beat the market by more than 1% for it to be worth your while.

Now for the next revelation.

(You might need to sit down for this)

2. The professional investor does worse than the stock market

The evidence consistently shows that active funds do worse than passive funds. Experts try to beat the market and get better results. But they nearly always fail.

This means an ordinary person investing in an index fund. Who pays not attention to the up & down of the market. Ignores which stocks are hot and which are not. Who does zero speculation. Wins over the long term.

The experts do worse and want to charge you for this ‘knowledge’! I promise I am not making this up!

I felt like I was pulling back the curtain in The Wizard of Oz with this discovery.

Let me give you an example of the mind-blowing impact of switching to an index fund and reducing your costs.

How I increased my pension by 60k

I’ve got $100k in my pension. I discovered my fees were 2%. A low-cost index fund pension costs about 0.35%. That’s a reduction of 1.65% per year.

(I used Vanguard. But am not advising you to use them. I have no connection to Vanguard)

That switch increased my pension by $1650 in year 1.

This gain happens every year so if I retire in 25 years:

$1650 x 25 = $41,250 pension increase

But it’s get even better.

This $41,250 gets invested. So it will be worth even more over time.

Let’s assume our pension grows by 6% each year.

$41250 x 6% x 25 years = $103,000

$103,000 extra in my pension because of one simple decision to switch pension to a low-fee fund.

BUT WE ARE NOT FINISHED. THERE IS EVEN MORE!

Our pension pot gets bigger each year. We pay into it and maybe our employer does too. Over the long term our pension grows due to stock market growth as well.

Fees are calculated as a % of the fund value. This means they aren’t $1650 but go up as the pension grows.

Our gain from cutting fees from 2% to 0.35% is likely to be $200,000+ on a 25-year pension investment.

(Full disclosure I’ll retire in 15 years so I will only gain about $60k in my pension from this decision).

Your latte is not the problem

We agonise over the wrong money decisions.

To get rich it is often recommended to cut expenses. Particularly small luxuries like a daily latte or weekly takeaway. You can then invest this money. It is claimed that if you do this over the long term then you’ll reap the rewards.

Now this is true

But it’s tough to do.

Deprive yourself every day/week for 25 years? That requires a lot of discipline. And the reward is so far away to be meaningless as a motivating factor.

Contrast this with one simple easy decision that could reward you with $200,000 when you retire.

I know which option I’m going for.

Actions for you to take:

• Check the fees on your investments (stocks, shares, pensions)
• Research whether you can move to a low-cost option
• Choose an index fund that covers many countries to lower your risk

This article does not contain financial advice. I am not a qualified financial advisor.

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