I have been fleeced before. When I was working in Egypt (2008-2010), I thought that it was time to figure out my retirement. It just so happened that a retirement advisor came to our school to sell retirement plans.
Wait sell you a retirement plan?
This was me seven years ago
Well that’s what it felt like because it seemed that I was the only one that paid!
I had invested (through an intermediary) in a group called Friends Provident. Friends Provident offered an offshore retirement plan to help me invest my money. Little did I know at the time, the fees that I was paying led to any gains in the market being eaten away. See this link about Friends Provident and other dangerous investments.
Fast forward to modern-day scams
This seems weird, but if you are a teacher you will know what I am talking about.
A couple of months ago, I was walking into the mailroom at school when I noticed someone sitting at the conference table. (A lot of times there are people at the table with one thing or another, but that particular day I seemed bored so I actually looked to see what it was about)
This particular person had the teacher’s kryptonite. Doughnuts and coffee! (see they lure you in before they fleece you!)
What did this horrible Lex Luthor want?
He wanted to talk to me about my retirement.
Now having been fleeced before, I usually steer clear from these people. Also having been fleeced, I have educated myself.
In case you are interested, this is the best book that I have found about how to invest properly. Instead of trying to beat the market — be the market:
Being bored at the time, I thought that I would talk to him. This is what our conversation amounted to:
“Can I talk to you today about your retirement?”
“Well I handle it myself but I will take a look at the funds that you offer and do some research. (Grabs pamphlet) Do you have any vanguard funds?”
“Uh … I think we do, they are all right on there”
“Ok cool”
As it turns out, they didn’t have vanguard funds. What they did have was a range of AXA funds (this was what the person was selling) So I did my homework.
Saving for retirement 
First of all, let me say that teachers, by and large, are horrible with money and personal finance. Many of them have really no idea of what is on offer to them, and what the implications are. But to their defense, most don’t have to. Many of the teachers in my district are on a Defined Benefit (DB) pension plan where they will get a certain percentage of their salary that equates to the number of years of service. Most people don’t have these — they have 401k (or the teacher equivalent 403b)
This means that they have to invest their own money into the stock market. (which is rightfully scary for many people)
The best option (in my opinion) is to not try and beat the market by picking individual stocks. (yes we know those people who bought Netflix or Apple low, etc, etc) but to pick the market itself through low-cost index funds
A bit of math
Let’s say that I have the ability to invest about $500/month in my retirement. So over the course of 30 years it would look like this:
500 x 12 x 30 = $180,000
Not very good. But you are investing in the stock market and benefit from compound interest!
Let’s say the S&P 500 averages about 8% growth per year (hypothetically)
By investing in the Vanguard Total Stock Market (VTSAX), you would have just over $744,000. Click here for a nice compound interest calculator. The expense ratio for VTSAX is .04% (meaning for every $10,000, Vanguard charges you $4)
Back to the doughnuts…
Taking a look at all of the funds on his sheet, none of them charged anything lower than 1.2% as an expense ratio. There was also administrative fees on top of that.
Back to the math…
That mean that the same hypothetical person would be making only, on average, 6.8% per year instead of 7.96% with Vanguard.
Bottom dollar? They would have $589,774.87.
The funds you choose may cost you over $154,000 in retirement!
Last week tonight did a great discussion on this:
