We've talked about putting sufficient money away during your working life so you won't be consuming Purina during the sunset years. John Bogle -- founder of Vanguard Mutual Funds -- sounds an additional cautionary note:
What percentage of my net growth is going to fees in a 401(k) plan?
... [A]n individual who is 20 years old today ... has about 45 years to go before retirement -- 20 to 65 -- and then, if you believe the actuarial tables, another 20 years to go before death mercifully brings his or her life to a close. ... If you invest $1,000 at the beginning of that time and earn 8 percent, that $1,000 will grow in that 65-year period to around $140,000.
Now, the financial system -- the mutual fund system in this case -- will take about two and a half percentage points out of that return, so you will have a gross return of 8 percent, a net return of 5.5 percent, and your $1,000 will grow to approximately $30,000. One hundred ten thousand dollars goes to the financial system and $30,000 to you, the investor. Think about that. That means the financial system put up zero percent of the capital and took zero percent of the risk and got almost 80 percent of the return, and you, the investor in this long time period, an investment lifetime, put up 100 percent of the capital, took 100 percent of the risk, and got only a little bit over 20 percent of the return. That is a financial system that is failing investors ...
The point Mr. Bogle makes is that over time, high fees in a 401(k) Plan or Mutual Fund can eat you alive. One or two percent sounds relatively small, but when you multiply that over thirty ... forty ... forty-five years, the magic of compounding allows those percentages to eat you alive.
In my reckless youth, I didn't get this concept at all, and so I allowed a "Financial Advisor" to take two percent of my total nut right off the top. And over time my total assets were gnawed down a lot.
As John Bogle points out, if you're into saving and investing for the long haul, low fees are essential, otherwise your returns will take a major hit. But go read the interview linked above. Bogle pinpoints a lot of the problems faced by young investors (workers?) socking money away in a choppy environment.