Why is retirement investing like managing your TV provider? It’s not because it’s so hard to find something you like among a zillion options. Well, actually that’s true too. But what we want to talk about is that massive, detailed monthly bill.
You’ve probably dug into your cable or dish statement at some point and wondered what all those line items for “access fees,” “speed boosters” or “regulatory charges” really mean. It’s frustrating and nearly impossible to make sense of them, yet they can add up to a lot of money. To the frugal consumer the takeaway is simple: question what you’re paying whenever you can, and be thoughtful about signing up for any add-ons, to make sure you’re getting your money’s worth.
It’s the same with your IRA or 401(k). Each of the funds in your portfolio has its own set of fees for management, trading, and so forth. There may also be “distribution fees,” an entirely legal form of kickback that particularly affects rollovers from 401(k) to IRA. The account itself probably charges fees as well, which can be minimal for a simple account, or pricey if you have a high degree of personalized service or professional advice.
But unlike your cable bill, the grand total isn’t added up for you right on the front page of your statement, or anywhere else. Until now.
In the interest of transparency, fairness, and sound investing, we’ve recently introduced the GuideChoice IRA Fee Checker. Just plug in some financial information about your investments and your account (don’t worry, we won’t keep this), and you’ll see your total. It’s expressed as a percentage of your account value, so you’ll need to do a little math to put it in dollars. And in case you don’t like what you see, we’ll also compare it to the cost of our own GuidedIRA – which comes with professional, affordable advice and management built in.
What you do with this information is up to you. We won’t presume to offer financial advice in a blog post. But we are big fans of two approaches. The first is index funds (or ETFs if you like). Taken together these deliver the broad diversification most people need in a cost-effective package. The second is automation. At a time when we trust computers to do everything from landing jumbo jets to picking a restaurant, not many people have complicated enough finances to justify human-powered financial advice.
If you’ve seen the numbers and you feel you’re getting good value from a premium product, great. Likewise if you really going to watch all those games on the Big Ten Network, go for it. But if you’re like the rest of us, we think you’ll want to get all the value you can from every dollar you spend. That may require taking another look at the fees you pay to invest.
Photo courtesy Patrick Bombaert via Creative Commons; all rights reserved.