My financial adviser is covering all of my annual fees ($100 max), until I reach $5k and then the account will pay for itself.
As Eomer said, your financial adviser has either mislead you, or failed to disclose properly how fees are assessed.
He's almost certainly covering your portfolio fees - that is the fee you pay for having money in your account. This is
on topof the management fee for the fund (the 1%) - which are taken directly out of the fund's assets. So you will never see a bill that says "1.7% management fee" - it's just reflected in a lower value per share.
edit: You may want to check if he's also receiving a kick back for selling particular funds to you - on top of the fees he charges you. That'd explain why he's willing to waive fees early on. Your fund comes with a 0.25% 12b-1 fee, which discloses the money spent on marketing and distribution of funds. For example, the glossy document you posted a picture of and incentives to advisers for recommending particular funds.
I also chose an aggressive plan, which is, from what I've read, smart to do when you're younger because you can take more risks.
100% world stock index is very aggressive. If you want even more risk, you can specifically pick an index funds for companies in the developing world: big upside once these countries develop, big downside if civil war breaks out or businesses are nationalized (personally, I wouldn't recommend it - the world stock index will include these funds weighted by their share in the global economy. Overweighting them is really just market timing on when these countries will develop). You're right that you can afford to take more risk. But more risk doesn't automatically mean higher expected returns.
My adviser has also been with Merrill Lynch for 28 years (He started there when he was 21, which is unheard of), so I trust his advice. Plus, he's paying all of my fees until $5k anyways. At that point, I can take a second look at where I am and where I want to be.
I know plenty of people who did internships there at 19 or 20 and started working there after college. I don't think this is particularly rare...
Eomer_sl said:
Jesus christ, that fund has a 5.75% front loaded fee AND a 1% MER.
Just to explain what this means: for every $100 you invest in the fund, they're going to put $94.25 into the fund - the rest they pocket. So for your initial $5k, they'll grab $290 - on top of management and portfolio fees.
If you use the chart in that link, chose a 5 year timeline, and compare it to the S&P 500 you'll see that you're getting absolutely fucked with that investment.
These charts do not include the 5.75% front loaded fee, by the way.
Tmac47_sl said:
I don't want to play the market, I just want to consistently put money into an account that experiences positive growth.
That's why we're recommending index funds. They do exactly what you want: not play around in the market and simply cash in on the overall market growth.
The fact that you're investing long-term is another reason to go with an index fund. In any given year, the best performing fund is an actively managed one. That's trivially true: if you have a hundred monkey's throwing darts to pick stocks, at least one of them is going to beat the average. Whether you beat the market in that year depends on how lucky you were when picking your actively managed fund. However, the best performing funds change every year. Over the long run (say 20-30 years), all but maybe one or two do worse than the market average. The question then is what the odds are that you're going to pick one of those funds out of the thousands that are out there. There's no way to predict which one it is. On top of that, if you start off with a thousand funds, maybe 100 of them will even still be around in 20 years.
