Sat Sep 21 2024, by Tyler Gardner

Why Paying 1% to a Financial Advisor is a Costly Mistake on the Path to Financial Freedom

Here is why paying 1% to a financial advisor over the course of your investing career is the single biggest mistake you will ever make on the path to financial freedom. I’m Tyler, I’m a former financial advisor and portfolio manager. Now I make financial content for free so that you don't have to pay for it.

1. The Performance Drag

Let’s say you put $1,000 into an index fund and invest it at 7% over the next 30 years. You'll most likely have just over $1.13 million waiting for you. But give that same $1,000 a month to a financial advisor, have them invest in the same index funds, and now instead of 7%, you get a 6% return for the next 30 years. That would result in only $948,000. It's a $65,000 performance drag.

2. Diminishing Returns in Retirement

Once you retire, you're told that you would be safe taking about 4% of your assets to live off of on an annual basis. Congratulations, 25% of that annual income just went to your advisor.

3. The Cost Over Time

Because it's in percentage terms, it won't look like much early on. If you have a $50,000 portfolio, you’ve just paid 500 bucks for a year of decent services. But now in retirement, you're paying $30,000 annually for your $3 million portfolio. That’s 60 times more expensive for basically identical services. Got it.

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