Charlie Munger said paying a financial advisor 2% out of 5% per year will lead to a 90% reduction in the value of your portfolio. How did he calculate this? I’m calculating a 32% reduction.
I'm calculating only a 32% drop. How's he getting 90%?
I just used this calculator: http://www.moneychimp.com/calculator/compound\_interest\_calculator.htm
He said this in the Berkshire Hathaway meeting during his speech February 14, 2019: https://www.ifa.com/media/audio/daily-journal-annual-meeting-full-audio-february-14-2019.mp3
This is what he said at 27:30 of above recording: "If you stop to think about all the expense and blabber that she didn't have to listen to and all the trouble she avoided. Zero cost. And of course, what people don't realize because they're so mathematically illiterate is if you make five percent and pay two of it to your advisors, you're not losing forty percent of your future, you're losing ninety percent. Because over a long period of time that difference causes a ninety percent disadvantage to you. It's hugely important for somebody who's a long term holder not to be paying a big annual toll out of the performance.”
He used this as the rationale as to why personal financial advisors have no value added and are basically just scamming people because you’re much better off just sticking your money in the Vanguard S&P 500 and having no advisor.
Thanks in advance!
Submitted June 28, 2019 at 08:32PM by silly321 https://ift.tt/2XGY5Go
