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Making Retirement Work Tip #1: Index Funds Instead of Mutual Funds

Well, first off, please don’t think that I’m saying that just because saving doesn’t work that you should just be spending every dime that comes across your path.

There are several things you can do to mitigate the effects of inflation, taxes, fees and declining risk/reward tolerance.

The easiest?

Index Funds Instead of Mutual Funds

Both basically base their rates of return off of the market.  So what’s the difference?  An index fund doesn’t charge you a 1.5-2.5% fee every year, winner or loser.  It’s more in the .4% to .6% range.    That is the reason why 90% of mutual funds underperform the market over time.

How much?  If you’re making a monthly contribution on top of that compounding interest, the difference between an 8% average compound and a 6% one is NOT 25%.  It’s over 40.

If there’s nothing else you take away from this blog, take that.  It’s free money.  And while it’s true that your financial planner will say that’s a horrible idea, there’s a very good reason for that.  A good whack of that 1.5-2.5% is his commission.   Who’s retirement are you paying for here, yours or his? 

To be continued…

2 Comments

  1. Andira says:

    i liked the stuff posted here. wishing you best of luck for your future.

  2. Evita says:

    nice info.

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