The full rhyme:
Low, low, keep it low,
Fees will eat your gain.
One percent, year after year,
Costs you in the end.
Most advisors charge a yearly fee to manage your money for you. This is often called an assets under management fee, or AUM fee for short. A common rate is 1% a year. The funds an advisor picks for you also have their own costs. So an advisor's 1% fee comes on top of your normal investing costs. It does not replace them.
Picture this. Say you invest $10,000. You leave it invested for 35 years, about the length of a career.
- Invest it yourself, in low-cost funds, earning 7% a year on average. It grows to about $106,800.
- Invest through an advisor instead. The advisor charges 1% a year. That brings your average return down to about 6%. It grows to about $76,900.
That one percentage point costs you about $29,900. That's 28% less money at the end. Real research backs up that 28% number.
Why does 1% cost so much? The fee is charged every single year. It is taken from your gains too, not just your original deposit. So it compounds against you, year after year, for decades.
A quick reality check. Real markets don't return a steady 7% every year. This is not a claim that every advisor charges exactly 1%. Fees vary. Some advisors also do financial planning beyond picking investments. That is worth weighing separately.
Bottom line. Before paying anyone 1% a year, ask what you are getting for it. Compare it honestly to a low-cost do-it-yourself option.