It’s been said before, “it’s not what you earn. It’s what you keep.” But I say it’s only what you keep that you’ve truly earned. As you build wealth there are a variety of hidden forces that suck the lifeblood of your savings.
Think about what it takes just to earn a receivable: the risk, the costs, the time, the headaches. Whether you are a serial entrepreneur, a professional or a PE investor, the dollars you actually collect are the most precious. Once in your bank account, it’s these dollars that get managed by professionals at investment firms.
When was the last time that you had an independent fee based advisor review your prospectuses? The major investment firms have high-level investment management teams who can do this. But if you don’t know who to ask, you certainly won’t receive when it comes to cost savings.
You need to quickly understand how to identify the hidden expenses in your portfolios. It’s likely that you need to work with an experienced professional advisor who is a fiduciary that can help you do this.
Let’s ponder the similarities of successfully surfing big waves and those of earning large business profits…
To earn your 2-3 hours on the beach in the morning, you need to go to bed early the night before your outing. You need to wake and get out the door before dawn. Drive to the beach, prep your board, plan your ascent into the sea, battle through the surf. And you do this for what? For the hope of catching a maybe a dozen good waves before 10:00 AM, if you’re lucky.
Depending on where you surf, the collective time on your board may only total five minutes. A dozen great rides may have lasted just four minutes in aggregate. Those four minutes took four hours of your time. You risked your ass, and you did it for the exhilaration of those four minutes.
Ask yourself, what does it cost you to put a million dollars in the bank every year? What’s your cost in effort and risk? Or the cost in time with people you love, and from doing other things you love? Think about how hard you work, and how much it hurts you when you fail.
Now think about that $30,000 fee on your million dollar portfolio, or that $300,000 fee on your $10 million portfolio. Did you really want to give a multi-million-dollar gift to an investment firm? Funny thing is, most of that money doesn’t even go to your trusted investment advisor. It gets retained by the financial institution.
You’ve had the battle for every penny, fighting the waves just to get out to sea and hope that your wave selection is spot on today.Then you did everything you could not to fall off the wave. So, it’s not just $30,000 that we’re talking about: it’s all of the effort, the blood, the sweat.
What does $30,000 or 3% mean, when it comes to an investment? Well, if you’re of the belief that your manager can earn you 10%, one would hope that your high priced investment manager could substantially outperform the market. She and her financial institution are getting paid $30,000 – but she’s at zero risk. You’re putting up all the money.
$30,000 or 3% can mean a lot on an annual investment of $1 million over 30 years. Assuming there’s an 8% annualized return, a 3% fee would mean that at the end of 30 years, that you’ve earned $432 million.
Compare that to a 1% fee. Take a guess at the difference. Is it $10 million more? How about $100 million more in wealth? Nope, the difference is nearly double. The investment with a 1% total cost structure will grow to $761 million.
Think about it a different way. Think about the money that the investment firm is keeping. It gets to keep 2%. What does their 2% grow to over thirty years on the same portfolio?
The growth is several hundred million dollars. Do you really love your investment management team that much?! How much work are they doing to earn those dollars? They didn’t hunt for it. They didn’t track it. They didn’t take risk for it. They didn’t bring it back to cook it.
You put up all of the capital. You risked your time to earn and collect a profit. You took 100% of the risk. They get to make money no matter what happens. Is that how you pay your employees? If you’re going to just give way your wealth, why not give it to them, or to charity, or to your loved ones?
It’s time to put an end to this loss. This is the first thing we can control and control it, you will. If you’re going to be a big wave surfer.
I know that there are some of you reading this that will say to themselves, “I get it. But I’m different. My investment management team earns that fee. They consistently outperform the market.” Perhaps that’s true. If so, then, yes, it may be a wise bet if your investment team has a history of consistently beating the market. The question to ask yourself is if you are willing to bet the house on that decision.