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Wrap fees? Beware of “investment professionals” who say they only charge a percent or two!
In a letter to his Berkshire Hathaway shareholders entitled “How to Minimize Investment Returns,” Warren Buffett points out that between December 31, 1899 and December 31, 1999, the Dow rose from 66 to 11,497. That’s a 17,400% gain! Thus, a hundred dollars invested into a Dow portfolio during the 20th century would have grown to $17,500!
Yet, that’s an annual compound return over 100 years of only 5.3%, said Buffet while adding that, if only 1% per year is paid in management fees, nearly 20% of the profits would go to the money manager.
Building on Mr. Buffets warning: If a $100 investment was made the last day of 1899 and managed for 1%, it would COMPOUND at a net rate of only 4.3%. Thus, the portfolio would have grown to only $6,736 during the century that followed. The fee would have cost great-gramps over $10,000, leaving him with a little over one-third what he would have without “professional help”.