The Hidden Fees Destroying Your Investments

Added: 2026-05-05

[00:00:00]A lot of people are investing the right way and still getting worse results than they should. And it's not even because they've picked bad investments, but it's because of what they're invested in.

[00:00:08]Because sometimes what you invest in could have a layer of fees that is built into it and it quietly will eat away at your portfolio returns over time. And you want to avoid this as much as possible. And this is one of the biggest scams in the finance industry that people don't even realize, especially if you have a financial adviser. A lot of them tend to push these types of products. So before we jump into the video, comment down below if you actually know what fees you are paying on your investments right now. And then one other thing I wanted to add regarding the channel is I know I've talked a lot about like basic finance concepts and I'm still going to occasionally have basic finance videos, but I want to do a little bit more in-depth videos on very specific things.

[00:00:44]So this is definitely one of them. And today I'm going to be talking specifically about the fees that are behind a lot of mutual funds. Because what happens with a lot of people is they get the basics down. They're investing every single month. They're putting money into their 401k. their Roth IRA, their brokerage account, and when they look at the historical returns of some of these mutual funds they're investing in, they should be getting between 8 to 10% a year. But like, they're not seeing that. And they might even be getting the market return, but they're still underperforming it. So, it makes things super confusing cuz you can go see, hey, the S&P 500 went up 20% this year, but my portfolio didn't go up 20%. Even though what I'm invested in is tracking the S&P 500. Like, how is that possible? And that is because of these fees. and they play a huge role because there's definitely a difference between the market return and your return. And so, like I said, the market could be giving you 8 to 10% a year, but if you're only getting 6 or 7% a year over a long period of time, that's going to add up to be a lot of money. And so, I want to break down what a mutual fund actually is because there's ETFs, there's index funds, and there's mutual funds. And not all mutual funds are bad.

[00:01:41]I also want to say that as well, and we'll talk about that a little bit later. But a mutual fund is basically a basket of stocks the same way an ETF is.

[00:01:48]So it could be, you know, 5% Microsoft, 4% Apple, 3% Amazon, and it could be a breakdown of all these different stocks that make up 100% of the mutual fund.

[00:01:57]But the difference between a mutual fund versus an ETF or an index fund is that a mutual fund is actively managed. There is somebody going in there and saying, hm, I want to sell a little bit of Microsoft and I want to buy more Nvidia stock or I want to sell a little bit of Nvidia and buy a little bit more of Adobe stock or you know, whatever company it is. And so there's somebody behind the scenes that is actively managing the balance in the breakdown of that mutual fund. And a lot of times people can gravitate towards mutual funds cuz they think, "Oh, there's somebody actively managing my money and so it's probably going to do a lot better, right?" And also the blame's not on you as the investor because if something goes wrong, it's the person that's picking the stocks or the company that's picking the stocks that you can blame. You don't have to take accountability for that. And the thing that's brutal when it comes to mutual funds is a lot of times they're recommended by like professional financial adviserss, even ones that are still fiduciaries, which means they legally have to look out for your best financial interest. If a financial adviser or the company they're working for is not a fiduciary, that means they are not held to a legal standard to look out for your best financial interest.

[00:02:56]And so that's a big thing that a lot of people don't know about because they go into some bigname company, they think they're getting, you know, the best investments and they're not. They're getting screwed over and they don't even realize it. And that's a whole separate video I could talk about as well. But today I specifically want to talk about the fees behind the mutual funds. But like I said, mutual funds are actively managed and a lot of times they're trying to beat the market. They're going to give you higher fees because there's somebody actively managing the money. So the logic of the mutual fund makes sense. But if you look at an index fund or an ETF, which are basically the exact same thing, they normally just track an index. So for example, I invest into VO or VU, which is Vanguard's S&P 500 ETF.

[00:03:31]That just tracks the S&P 500. There's nobody behind the scenes sitting there, you know, selling this stock, buying this stock. Like, it is just going to follow exactly what the S&P 500 is doing. And when it comes to index funds and ETFs, they are way lower in fees.

[00:03:44]For example, the fees on a lot of ETFs are like 0.03%, 0.02%, 0.05%. So, it is very small compared to a lot of mutual funds. The fees can be half a percent, 7%, 1%, or maybe even higher than that.

[00:03:59]And the reason people don't realize that they're paying anything is because there's no bill. There's no charge hitting their bank account. But what they don't realize is these fees, they are being taken out of their investments. And so some of the main fees you want to look at, the first one you want to look for is something called the expense ratio. And that is the annual fee that is taken as a percentage of your investment. This comes out automatically. You're never going to see this. This is just an automatic thing.

[00:04:20]And so when you look at a lowcost ETF like what I was talking about earlier with VU or VTI, something like that, normally the expense ratio is between like 0.0 003% to 0.05%. It is very very low. But when it comes to a lot of mutual funds, the expense ratio can be8%, it could be 1%, it could be 1.2%.

[00:04:39]And although that doesn't sound like a lot, over a very long period of time, that is a brutal killer to your returns.

[00:04:45]And that's just the expense ratio. On top of that, most advisors charge a fee.

[00:04:49]So, a lot of financial advisors, they'll charge you like 1% of your assets. So, you're already losing 1% from owning a mutual fund, plus you're losing another 1% to pay your adviser. So, that right there is just 2% each year. And the adviser could potentially not even be doing a lot with your money. They're taking 1% of your money every year, which it doesn't sound like a lot, especially if you only have $10,000 or $50,000. But once you start to get into $150,000, $500,000, a million, $2 million, that 1% absolutely adds up. So, you got the expense ratio, you got the advisor fee, and then there's another thing called load fees. So, there's two types of load fees. The first one is a front-end load fee. What this means is that when you put money in to invest, you're paying a fee upfront just to buy that mutual fund. So, that is a front-end load fee. But then a back-end load fee is that you pay when you sell.

[00:05:36]And so, that's kind of annoying. Like, you don't have to be paying all of these different fees just to invest in the stock market. And then another type of fee that a lot of people don't know about is something called a 12b1 fee.

[00:05:46]And that is just basically like an annual marketing or distribution expense that is charged by some mutual funds to existing shareholders. And the point of these fees is to cover things like advertising, marketing, and broker commissions. They typically can range from like 0.2 to 1%. And they are a part of the total expense ratio. So that is like a subset fee within the expense ratio that you should at least be somewhat aware of. And all these fees you're paying, this happens every single year. It's not just a onetime thing where you pay 1% initially for the mutual fund, 1% for your adviser. No, that is 2% that you're losing every single year. And so I do want to kind of break down the math a little bit more.

[00:06:21]Let's pretend that somebody just invests in VTI, okay? And they get, let's say, a 0.03% fee. So they're just expecting to whatever the market does, which is just the 500 largest companies plus the medium plus the smallsiz companies, whatever that does for the year, they're basically getting that exact return minus 0.03%. Very small, right? So that's the first person. That is the smart investor here. Now, the second person, they have an adviser, and that's okay that they do, but they're paying the adviser 1%, the mutual fund takes away 1%. So, let's say you start out with $10,000 and you invest $500 a month for 30 years. And let's pretend the market returns 8%. The first person, they're going to get very, very close to the full 8% minus a very small difference. But the second person, their return is going to be a lot closer to 6%. And if you look at the account balance difference at the very end, the first person has way more money. And it's not because the first person is 10 times smarter than the second person.

[00:07:12]It's because the second person is getting screwed and they don't even know it. And like I said, this is only because of fees, which is just a crazy thing. And if you guys don't believe anything I'm saying in this video, at least go read this book that was written by Jack Bogle. I believe it's called like the little red book of index investing or something like that. I can't remember the exact title, but I read that book and he talks about these exact fees. And if you don't know who Jack Bogle is, he is the founder of Vanguard, which is one of the largest companies in the world. So that is one thing you got to know. He is the one that invented basically like passive ETF investing and index investing. He was one of the first people to do it. And so I did want to at least mention that. And what a lot of people don't understand is okay, yeah, you're losing 2% a year, but you're also losing growth on that 2% every single year. So the gap just getting bigger and bigger and bigger the longer your time horizon is. That 2% it's not just some little fee. That is a drag on your financial future. I mean, that is a big difference. You could potentially retire a couple of years earlier if you could avoid this 2% fee that you're paying. Because when it comes to compound interest, those small differences early on you're not going to really notice. But once you get into those later years, year 25, you're 30, you're 35, you're 40, that is when those differences create a massive gap. And a good example of this is let's pretend that you and somebody else are going to run a very long distance. Like I'm talking like a marathon. Okay? If the first person is just a normal marathon runner and the second person is also a normal marathon runner, but the second person has like a 5 lb weighted vest on them or a 10 pound weighted vest. At first it may not seem like a lot. you know, miles one and two, miles five, six may not seem too bad, but once you get to mile 24, mile 25, mile 26, there's probably going to be a pretty big gap there because the second person is hurting. And so, at first, you may not notice this gap in those, you know, earlier miles or the earlier years if you're investing. But by the time you get to those later years or those later miles, the gap is just going to get wider and wider. And 1 to 2% sounds very small at first, but over 20 to 30 years, that can cost you tens of thousands of dollars, if not hundreds of thousands of dollars. And people ignore this because it's not a very visible thing. It's not something you see every single month or year. And like I said, it's not like a bill that hits your account. So like you don't even know it's happening until you research it and truly look into these things. So one thing I did mention earlier in this video though is that not all mutual funds are bad. Like I got to, you know, be valid here. I got to be somewhat fair. Some mutual funds are decent because there are some mutual funds that are low cost and they're basically the same thing as ETFs. The main problem I have is with mutual funds that have very high fees just for being actively managed. And the thing that's crazy about all of this too is a lot of times those actively managed funds, they don't even outperform the market. Like I guarantee you can find an ETF out there that has the same, if not better performance than your actively managed fund most of the time. So not only are you paying high fees on those funds, but then you have the adviser charging you 1%. So you have the adviser, you could have a front load fee or a potential back-end load fee, and you don't want to deal with all these fees. I mean, like I said, it's costing you a lot of money.

[00:09:59]And then another question a lot of people might have is, well, why is this even happen? Like, how is this allowed?

[00:10:04]And the reason for this is because this is how the finance industry has always been. Financial adviserss are paid based on the amount of assets that they have under management. And the more fees that they charge equals the more money that they're going to make. That is the name of the game. Mutual funds make billions of dollars from fees every single year.

[00:10:20]And a lot of people don't question it because finance is a very complex thing.

[00:10:23]Your adviser may throw a bunch of jargon at you, but you just trust this person.

[00:10:26]and you're going to lean on that and you think, you know what, they're going to lead me to the right place. And they might even tell you, oh, well, this is just like how investing works. Everybody does this. But the reality is that's not how it works. And this is not all advisors, but a lot of them can just be like a wolf in sheep's clothing. They are low-key screwing you over whether you realize that or not. In the finance industry, it's not designed to minimize your fees. It's designed to charge you fees for them to make money off of it, and then they're going to justify why you have those fees. So, here's what you can do to make sure that you're not getting screwed over by this. The first thing is look at the expense ratio. You should know exactly what you're investing in. There should be a ticker which is either three letters or five letters where you can type in the exact letters and you can see what the expense ratio is which tells you exactly what you're investing in. What is that initial fee? So that's the first thing I would do. And then the next thing I would do is try to compare what you're investing in right now to some type of lowcost ETF or index fund that is very similar. If you're invested in a tech mutual fund, then go look at a tech focused ETF and see if there's a difference in the expense ratio as well as the performance. And if you do have a financial adviser that is selling you these things, you need to ask your adviser a couple of different questions.

[00:11:31]The first one is what are you paying?

[00:11:32]Are you paying that fee upfront? Are you paying a backload fee? How much does your adviser charge you each year just to manage your assets? What are the total fees that you're paying for each of your investments? You want to know all of these things. And then you should also ask your adviser, are you a fiduciary? And if you don't believe anything I'm saying, just Google this stuff for yourself because I job shadowed a financial adviser in college who was a fiduciary and he told me all this stuff immediately and I was like, "Holy [ __ ] I didn't even know like how is this a thing? How can they get away with this?" And he basically explained what I just explained to you because when it comes to investing, it doesn't need to be this super complex hard thing that you don't understand. I really do feel like somebody can teach themselves how to invest in a smart way in not that long of a time frame. I bet within like 1 2 3 months if you were to really research it and understand a couple of things and read a couple of, you know, decent finance books, you'll be good.

[00:12:21]Because when it comes to investing, if you take the simple and cheap route, it's probably going to actually do better than having some very complicated and expensive route. And I want to be very clear here. I'm not telling you to avoid investing. I'm not telling you to permanently avoid financial advisors. If you feel like you need one, that's fine.

[00:12:35]But at least ask them the right questions. And if you don't have a financial adviser and you're still investing in mutual funds, at least understand what fees you're paying for those mutual funds because why would you go get 6% a year when there is the exact same thing out there that gives you a way better performance. Why would you not do that? That's the least you can do for yourself. And a lot of people don't even realize that they're paying all of these fees. And so you want to keep more of what you're earning. And I think that's very important for everybody. So that is it for me. I hope you guys enjoyed the video. If you did, drop a like down below. Hit that subscribe button. I'll see you in the next one.

[00:13:06]Peace.