Buffett said: “If returns are going to be 7 or 8 percent and you’re paying 1 percent for fees, that makes an enormous difference in how much money you’re going to have in retirement.”
Q: why statistically most mutual funds under-perform the benchmark?
1.5% is a typical management fee, similar to GSAM/PWM quarterly fees. Suppose I invest the same amount in two similar funds — an ETF vs a mutual fund.
- 12k -> $180 fee = 1.5%. Second year my ETF becomes
- 10k -> $150
- 8k -> $120
- 9k -> $135
- 8k -> $120
- 8800
- 10k -> $150
- 11k -> $165
- in this year ETF recovered to 12k, but mutual fund is about 10% (at least 1k) below break-even.
It took 8 years for ETF to recover, but it would take the mutual fund a few more years.
in https://www.newretirement.com/retirement/the-lockbox-strategy-and-10-other-retirement-income-tips-from-nobel-laureate-william-sharpe/, Sharpe pointed out the same annual fee eroding a retiree’s returns.
— William Sharpe concluded that active fund managers underperform passive fund managers, not because of any flaw in their strategies, but because of the laws of arithmetic. In order for active fund managers to beat the market by just 1%, they would need to achieve an excess return of more than 2% just to account for the average 1.19% management fee.
https://www.investopedia.com/terms/m/managementfee.asp