Tuesday, October 12, 2010

Retirement Account Management Fee Ponzi Schemes That Really Piss Me Off

I'll bet that most people that have a retirement account or two have someone else managing them and that they pay Management Fees. I'll also bet that those accounts are heavily invested in Mutual Funds or Exchange Traded Funds that also charge Management Fees. So, on top of the fee you pay your broker to manage your account, you are also paying the Fund Managers to manage those funds. And, I'll bet that when everyone looked at those fees and saw that they range from 0.75% down to 0.15%, they said, "Oh. That ain't much. That's a piece of cake." Hahahahahahahahahaha, were you fooled!

Here's the way it is. Pay attention. I recently moved one of my retirement accounts from a "Managed Account" to an account where I have complete control because I analyzed the management fees and threw up my lunch. Here's the results of my analysis. All of the fees, yields, costs and profit are annual numbers. The Market Value (Mkt Value) is based on the latest exchange quote. I also had to change my paradigm, and that meant that I had to get the idea that this account is for "MY PROFIT," not some damn fund or account manager. So, get that idea in to your head. As you can see, even though those management fees are really, really small, they cost me a whopping 63.66% of the profit from the account! Holly cow! By the way, ETF means Exchange Traded Fund. Those are the same as Mutual Funds, except they're traded throughout the day on the stock exchange. Profit is what I get after the fee is paid.

ETF  Shrs    Value     Fee  Yield     Cost    Profit  % Profit
DWM   172   $8,020   0.48%  2.10%   $38.50   $129.93   22.86%
EEB   172   $7,857   0.69%  1.11%   $54.21    $33.00   62.16%
GSG   144   $4,442   0.75%  0.00%   $33.32   ($33.32) (100%)
HYG    56   $4,992   0.50%  7.89%   $24.96   $368.94    6.34%
ICF   101   $6,395   0.35%  2.85%   $22.38   $159.88   12.28%
IEF   417  $41,633   0.15%  2.82%   $62.45 $1,111.61    5.32%
IJT    98   $6,197   0.25%  0.70%   $15.49    $27.89   35.71%
IWD   133   $8,001   0.20%  2.26%   $16.00   $164.83    8.85%
PWY   589   $8,016   0.73%  0.81%   $58.52     $6.41   90.12%
PZI   246   $2,494   0.86%  2.29%   $21.45    $35.67   37.55%
SHY 1,066  $89,949   0.15%  0.93%  $134.92   $701.60   16.13%
TLT   100  $10,558   0.15%  4.51%   $15.84   $460.33    3.33%
VOE   195   $9,582   0.14   0.05%   $13.42    ($8.62) (280%)
VOT   125   $6,790   0.14%  0.00%    $9.51    ($9.51) (100%)
VUG   109   $5,058   0.14%  1.46%    $8.48    $79.97    9.59%
Cash       $28,616   0.00%  0.05%    $0.00    $14.31    0.00%

Sub-total $249,603                 $529.46 $3,424.92   14.04%
Account Mgmt Fee     0.75%       $1,872.03 $1,370.89   57.73%

Totals                           $2,401.48 $1,370.89   63.66%

Is it worth your time to manage your account yourself? It is for me. I can use that $2,400 per year for something else other than Christmas gifts for fund managers. And, I can be choosy. For example, I can get rid of all of those ETFs that are taking large percentages of my profit and keep or increase my holding of those that pay better. I can also look at the prospectus of those that I like and buy the same stocks or bonds they buy without buying the ETF itself.

And another thing. If you look carefully, you'll see signs of gross mismanagement. The plan that I chose at the beginning was the "Conservative" plan. It looks to me like I got the wasteful plan. For example, the plan bought a small number of shares in the ETFs with the greatest returns, and an inordinate amount of shares in the ones that cost the most. Awk! I'm paying for them to do that? The fact is, after I looked into it, that machines do all the buying and selling and the so-called "re-balancing" the account. People don't do anything. So, in effect I'm paying a programmer to program algorithms to manage my account. I'm a programmer, and I know that they can't be trusted.

There is a caution about buying bonds, though. You have to hold them until they expire, which may be years. If you buy bonds, build a "Bond Ladder," so that some are always expiring every year. You don't have all of your money tied up in long term bonds by doing that. So, for bonds, I may keep the bond ETFs, because I can sell those off anytime I want.

Thought you'd like to know.


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