You guys never cease to amaze me.

Was I a little rough? Yes. Did I bash the mutual fund industry for robbing us blind? Sure. Did I expect some hate mail? Of course, but not this.

Feeling a little lost?
Don't worry -- here's a quick summary. A few months back, I proposed a little experiment. It was a bogus mutual fund made up of just three stocks, each bought in January 1990 and sold 10 years later.

For my three stocks, I chose Best Buy (NYSE:BBY), Texas Instruments (NYSE:TXN), and Hewlett-Packard (NYSE:HPQ). But any number of former highfliers would have done the trick.

The idea was to show how your modest $10,000 investment could have ballooned to $422,563 in just 10 short years. But here's the catch.

You'd have paid your mutual fund manager some $20,000 in fees and surrendered nearly $58,000 in lost profits (money not earned on those fees). So, instead of $422,000, you'd be sitting on a lot less.

So, you hate me, right?
Of course you do, but I thought you'd take the funds' side. I thought you'd point out that nobody could pick just those three stocks, much less time the market so perfectly. In other words, I thought you'd say that my $78,000 blood money is a gross exaggeration.

Just wait until you hear what most of you really said. But first, let's revisit my second hypothetical -- namely, that you invested just $1,000 a year for 20 years. In this scenario, you earned a slightly more reasonable, yet still impressive, 22.8% per year. Guess what? You'd still be out a mind-blowing $90,000 in fees and lost profits.

And there's nothing random about this second scenario. That 22.8% annual return is the figure industry watchdog Mark Hulbert says David and Tom Gardner have delivered to their Motley Fool Stock Advisor subscribers, going on five years now. For details, check out "Don't Invest Another Penny." But please come back, because this is where it gets good.

You got worked like a chump!
Or so you told me. Apparently, you're fine with me comparing the fund industry to an IRS on steroids. You took me to task for understating the case -- for trivializing the real cost to you as an investor, at least on a percentage basis.

And you're right. John Bogle -- the founder of Vanguard Funds -- makes the case bluntly in his latest book, The Battle for the Soul of Capitalism. Bogle shows how you don't need blowout returns (like in my superstock '90s example) to make the case against mutual funds ... you need time. Here's why.

Beware the "tyranny of compounding"
As it turns out, financial "intermediation" costs would have eaten up just 19% of your total returns ($78,000 out of $412,562) in my outrageous first example. That sounded like a lot to me, but apparently not to Bogle -- and to some of you, either. In fact, for most of us, it will be worse.

For one thing, you won't be making 4,126% every 10 years. That's because for every Yahoo! (NASDAQ:YHOO) your skipper catches for a quick 10-bagger, he'll surf a CMGI (NASDAQ:CMGI) for a 90% plunge (yes, I know it's coming back). But mostly, we'll bounce between ExxonMobil (NYSE:XOM) and Pfizer, and other widely held stocks.

And even when your manager does catch lightning, he'll buy and sell too often, and at the wrong times. That's one reason Vanguard's Bogle thinks you'll earn less than "average" -- 8.5% per year by his estimate. Plus, you won't invest for 10 years, but more likely 25, 30, or even 45 years or more. Well, brace yourself, because this thing really gets ugly.

That'll be 80% off the top, sir
According to Bogle, if you invest for 45 years at his expected market return of 8.5% per year, these dastardly "intermediation" costs can steal up to 80% of your rightful profits. You read that right. Not a mere 19% like in my ridiculous little scenario, but up to a full 80%. Ouch.

For one thing, Bogle uses a more aggressive 2.5% for intermediation costs. That's because he goes beyond reported "management fees" and includes taxes, transactions, and timing costs. And given that Bogle founded Vanguard, the most trusted mutual fund company in the world, I'm inclined to believe him.

More importantly, Bogle realizes that the more realistic your returns, the more deadly that 2.5% becomes, especially when compounded over the years. In other words, costs kill when your portfolio keeps doubling every six months, but when it doubles every 10 years or so -- costs kill you dead!

What you can do about it
Frankly, I don't share Bogle's outlook for stocks. I think we'll do better. But even if we go back to my optimistic assumption that you match the remarkable 22.8% per year that Stock Advisor members have earned since the service started in 2002, you're still forking over $90,000 in intermediation costs every 20 years.

If you sort of resent that, here's a solution a lot of folks are considering. Start managing some of your own investments. You don't have to jump in all at once. You don't even have to dump all your funds. But you can see how important it is that you give it some thought -- and soon.

Of course, you're going to need some great stocks. Give Stock Advisor some thought. You can get the top picks each month from Motley Fool co-founders David and Tom Gardner, and you can try it free for 30 days. There's no pressure to subscribe -- and if you do decide to join after your trial, it sure as heck won't cost you $100,000. To learn more about taking advantage of this special free trial, click here.

This article was originally published Sept. 29, 2006. It has been updated.

Paul Elliott owns shares of Pfizer, which is an Inside Value recommendation. Best Buy is a Stock Advisor and Inside Value pick. Yahoo! is a Stock Advisor selection. Of course, you can see all of David and Tom's recommendations instantly with your free trial. The Fool has a disclosure policy.