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I found a really good post on the true cost of portfolio management fees. I did a cost analysis when deciding whether to forgo my partner's 403b tax deferral vs using an after tax account. Sometimes the fees are so high in tax deferred accounts that people are better off going with a Vanguard after tax account.

Anyway, this post is along those lines:

http://early-retirement.org/cgi-bin/yabb/YaBB.pl?board=intro_board;action=display;num=1098910884

Don't know if you have a finance background, but the true cost of a 1% reduction in compounded returns over a long period of time is substantial. Let's do some DCF analysis -

Assume:
$10m portfolio today
30 year time period
Expected market return: 10%
Advisor fee: 1%
No distributions

Future value of your portfolio with no fees:
10000000(1+.1)^30=174m
Future value of your portfolio less the 1%:
10000000(1+.09)^30=132m
A future value difference of: $41m
Which is equal to a present value of:
41000000/(1+.10)^30=$2.4m or nearly 25% of your starting portfolio. If your adviser actually takes a 1.75% fee, you lose about $3.8m, or nearly 40%.

For that kind of money, the advisor better have some REALLY good advice.

on Oct 28th, 2004, 4:07pm, IDunno wrote:I feel that the 1% or so fee would be worthwhile to combine their knowledge with mine.

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