Comments on: A Victim of the 10% Compounding Myth http://www.lazymanandmoney.com/a-victim-of-the-10-compounding-myth/ Saving, Earning, and Investing Money Sat, 21 Nov 2009 00:22:17 -0800 http://wordpress.org/?v=2.8.5 hourly 1 By: Lazy Man http://www.lazymanandmoney.com/a-victim-of-the-10-compounding-myth/comment-page-1/#comment-1252 Lazy Man Fri, 12 Jan 2007 05:13:24 +0000 http://www.lazymanandmoney.com/a-victim-of-the-10-compounding-myth/#comment-1252 You can get by a lot of the fees with Zecco and either ETFs or just straight stock purchases. I don't see ETF going away or raising expense ratios. If anything, they should go lower as more people invest in them. Of course Vanguard funds are also low expense and people have been investing in them for years. And the first $4000 can be in a Roth IRA, so you would only be taxed on it once (when it was earned). You can get by a lot of the fees with Zecco and either ETFs or just straight stock purchases. I don’t see ETF going away or raising expense ratios. If anything, they should go lower as more people invest in them. Of course Vanguard funds are also low expense and people have been investing in them for years.

And the first $4000 can be in a Roth IRA, so you would only be taxed on it once (when it was earned).

]]> By: Rich Slick http://www.lazymanandmoney.com/a-victim-of-the-10-compounding-myth/comment-page-1/#comment-1250 Rich Slick Fri, 12 Jan 2007 03:54:51 +0000 http://www.lazymanandmoney.com/a-victim-of-the-10-compounding-myth/#comment-1250 I think there is more to the myth than just the 3% inflation rate. If that 10% return is a mutual fund does it include the Mutual Fund Fees? These fees & expense ratios usually run 1% to 3% on top of the inflation rate. So in order to really earn 10% you need to factor: 1. Three percent inflation 2. Two percent management fee / expense ratio 3. Taxes? So 10% 3% (inflation) 2% (fees) = 15% (does not include taxes!) When people finally get around to understanding these numbers a light will go off in their head and they'll switch to ETFs (low fees) and inflation hedge (options) which also provide dollar cost averaging, tax efficiency, and diversification people often seek. If history is any indicator, ETFs will become dinosaurs when the average Joe starts putting his money in them, then it'll be time to move on to the next big thing. I think there is more to the myth than just the 3% inflation rate. If that 10% return is a mutual fund does it include the Mutual Fund Fees? These fees & expense ratios usually run 1% to 3% on top of the inflation rate.

So in order to really earn 10% you need to factor:

1. Three percent inflation
2. Two percent management fee / expense ratio
3. Taxes?

So 10% 3% (inflation) 2% (fees) = 15% (does not include taxes!)

When people finally get around to understanding these numbers a light will go off in their head and they’ll switch to ETFs (low fees) and inflation hedge (options) which also provide dollar cost averaging, tax efficiency, and diversification people often seek.

If history is any indicator, ETFs will become dinosaurs when the average Joe starts putting his money in them, then it’ll be time to move on to the next big thing.

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