Markets
How Wall Street Fools You Into Overpaying for Underperformance
How Wall Street Fools You to Overpay for Underperformance
Why do most people invest their hard-earned money?
Ultimately what most people really want is freedom – the freedom to do more of what they want, whenever they want, and with whomever they want.
Sadly, many people never achieve this long-desired freedom for themselves or their families. That’s because there is a silent investment killer that picks away at many investors’ portfolios, and it’s all part of Wall Street’s plan to line their pockets.
Becoming Unshakeable
Today’s infographic is from Tony Robbins, and it uses data and talking points from his #1 Best Selling book Unshakeable: Your Financial Freedom Playbook, which is now available on paperback.
Specifically, the infographic dives deep into the rabbit hole of fees associated with the investing products sold to most people saving for retirement, while also showing that these same Wall Street products often can’t beat the performance of the market.
The Silent Portfolio Killer
Take a look at your investing statement, and it’s likely that your portfolio is in fact growing. Unfortunately, most people leave it at that, and they don’t question any further.
But the stats are revealing:
- 71% of Americans believe they pay no fees at all to have a 401(k) plan
- 92% of Americans admit they have no idea how much they are paying
In other words, they are blindly trusting the financial industry to look out for their best interests.
Meanwhile, the grim reality is that mutual funds, which are used in many 401(k) plans, have visible and hidden costs that can impact portfolio performance.
Fee | Description | Cost (Avg.) |
---|---|---|
Expense ratio | This covers marketing and distribution costs, as well as management fees. | 0.90% |
Transaction costs | Includes brokerage commissions, market impact cost, and spread cost. | 1.44% |
Cash drag | Paying 100% of fund's expense ratio, even though fund isn't fully invested. | 0.83% |
Taxes | Mutual fund gains are taxed - this doesn't apply to tax-free plans like 401(k)s | 1.00% |
Advisory fees | For fee-based financial advisors, these fees often range from 0.25% - 2.50%. | n/a |
Soft dollar cost | A hard cost to estimate, this a quid pro quo between funds and brokerage companies. | n/a |
Source: Forbes
According to Forbes, the average total of all of these costs is 4.17% – though of course, costs usually vary widely from fund to fund.
When you calculate the impact of excessive costs multiplied over many years, it takes your breath away.
– Tony Robbins
Not All Fees are Bad
It is important to note that not all fees are bad. Working with the right financial advisor can help you make better decisions, and this expertise can be used to save you money in the long run.
A recent Vanguard study helps quantify the value a good advisor can bring:
- Rebalancing portfolio – 0.35%
- Lowering expense ratios – 0.45%
- Asset allocation – 0.75%
- Withdrawing the right investments for retirement – 0.70%
- Behavioral coaching – 1.50%
In aggregate, the right financial advisor can create 3.75% in value – that’s 3X more than a sophisticated advisor might charge, and doesn’t even include the added benefits of reducing taxes, estate planning, and other areas.
A Difference Maker
One percent here, two percent there – it’s barely anything in the long run, right?
It turns out, however, that the power of compound interest is so great, that even 2% can be the difference between financial freedom and financial ruin.
Put $1 in the stock market for 50 years at a 7% rate of return, and you’ll end up with nearly $30. Get charged a 2% fee to bring your returns to 5%, and your fortune is one-third the size!
You put up 100% of the capital, you took 100% of the risk, and you got 33% of the return!
– Jack Bogle
Chasing Market Beating Returns
Investors often buy top performing mutual funds or try to time the market, because ultimately they are hoping to beat the market to achieve financial freedom.
However, it’s not clear that either of these strategies work.
Buying “Top-Performing” Funds
Industry expert Robert Arnott studied all 203 actively managed mutual funds with at least $100 million in assets, tracking their returns for the 15 years from 1984 through 1998.
And you know what he found?
Only 8 of these 203 funds actually beat the S&P 500 index. That’s less than 4%!
Trying to Time the Market
Researchers Richard Bauer and Julie Dahlquist examined more than a million market-timing sequences from 1926 to 1999. Their conclusion: just holding the market outperformed more than 80% of market-timing strategies
The Moral of the Story
Wall Street tries to fool you into overpaying for underperformance.
Overpaying: Fees and taxes can be silent portfolio killers. Even 1% or 2% makes a big difference over time.
Underperformance: Only a small percentage of funds beat the market over time, and much of this can be attributed to randomness.
Only being in the market, while minimizing costs, can empower you to getting the real financial freedom you deserve.
Markets
Charted: Tesla’s Unrivaled Profit Margins
This infographic compares Tesla’s impressive profit margins to various Western and Chinese competitors.

Chart: Tesla’s Unrivaled Profit Margins
In January this year, Tesla made the surprising announcement that it would be cutting prices on its vehicles by as much as 20%.
While price cuts are not new in the automotive world, they are for Tesla. The company, which historically has been unable to keep up with demand, has seen its order backlog shrink from 476,000 units in July 2022, to 74,000 in December 2022.
This has been attributed to Tesla’s robust production growth, which saw 2022 production increase 41% over 2021 (from 930,422 to 1,313,851 units).
With the days of “endless” demand seemingly over, Tesla is going on the offensive by reducing its prices—a move that puts pressure on competitors, but has also angered existing owners.
Cranking up the Heat
Tesla’s price cuts are an attempt to protect its market share, but they’re not exactly the desperation move some media outlets have claimed them to be.
Recent data compiled by Reuters shows that Tesla’s margins are significantly higher than those of its rivals, both in terms of gross and net profit. Our graphic only illustrates the net figures, but gross profits are also included in the table below.
Company | Gross profit per car | Net profit per car |
---|---|---|
🇺🇸 Tesla | $15,653 | $9,574 |
🇺🇸 GM | $3,818 | $2,150 |
🇨🇳 BYD | $5,456 | $1,550 |
🇯🇵 Toyota | $3,925 | $1,197 |
🇩🇪 VW | $6,034 | $973 |
🇰🇷 Hyundai | $5,362 | $927 |
🇺🇸 Ford | $3,115 | -$762 |
🇨🇳 Xpeng | $4,565 | -$11,735 |
🇨🇳 Nio | $8,036 | -$19,141 |
Data from Q3 2022
Price cutting has its drawbacks, but one could argue that the benefits for Tesla are worth it based on this data—especially in a critical market like China.
Tesla has taken the nuclear option to bully the weaker, thin margin players off the table.
– Bill Russo, Automobility
In the case of Chinese EV startups Xpeng and Nio, net profits are non-existent, meaning it’s unlikely they’ll be able to match Tesla’s reductions in price. Both firms have reported year-on-year sales declines in January.
As for Tesla, Chinese media outlets have claimed that the firm received 30,000 orders within three days of its price cut announcement. Note that this hasn’t been officially confirmed by anyone within the company.
Tit for Tat
Ford made headlines recently for announcing its own price cuts on the Mustang Mach-E electric SUV. The model is a direct competitor to Tesla’s best-selling Model Y.
Chevrolet and Hyundai have also adjusted some of their EV prices in recent months, as listed in the following table.
Model | Old Price | New Price | Discount |
---|---|---|---|
Tesla Model Y Long Range | $65,990 | $53,490 | 18.9% |
Chevrolet Bolt EUV 2023 | $33,500 | $27,200 | 18.8% |
Tesla Model Y Performance | $69,990 | $56,990 | 18.6% |
Chevrolet Bolt 2023 | $31,600 | $26,500 | 16.1% |
Tesla Model 3 Performance | $62,990 | $53,990 | 14.3% |
Hyundai Kona Electric 2022 | $37,390 | $34,000 | 9.1% |
Ford Mustang Mach-E GT Extended Range | $69,900 | $64,000 | 8.4% |
Tesla Model 3 Long Range | $46,990 | $43,990 | 6.4% |
Ford Mustang Mach-E Premium AWD | $57,675 | $53,995 | 6.4% |
Ford Mustang Mach-E RWD Standard Range | $46,900 | $46,000 | 1.9% |
Source: Observer (Feb 2023)
Volkswagen is a noteworthy player missing from this table. The company has been gaining ground on Tesla, especially in the European market.
We have a clear pricing strategy and are focusing on reliability. We trust in the strength of our products and brands.
– Oliver Blume, CEO, VW Group
This decision could hamper Volkswagen’s goal of becoming a dominant player in EVs, especially if more automakers join Tesla in cutting prices. For now, Tesla still holds a strong grip on the US market.
Thanks, Elon
Recent Tesla buyers became outraged when the company announced it would be slashing prices on its cars. In China, buyers even staged protests at Tesla stores and delivery centers.
Recent buyers not only missed out on a better price, but their cars have effectively depreciated by the amount of the cut. This is a bitter turn of events, given Musk’s 2019 claims that a Tesla would be an appreciating asset.
I think the most profound thing is that if you buy a Tesla today, I believe you are buying an appreciating asset – not a depreciating asset.
– Elon Musk, CEO, Tesla
These comments were made in reference to Tesla’s full self-driving (FSD) capabilities, which Elon claimed would enable owners to turn their cars into robotaxis.
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