Fees – What Are You Paying For Your Investments?

Do you actually know how much you are paying for your investment accounts or mutual funds?

Many investors may believe that the “expense ratio” is the only fee paid within their mutual funds. In addition to the expense ratio, you must also add the transaction costs. This can include brokerage commissions, market impact costs and spread costs.

In a Forbes Magazine article, it was estimated that the average cost of owning a mutual fund was 4.1 percent annually (if held in a taxable account) and 3.1 percent (if held in a 401(k) plan).

“Typically, 401(k) fees run from 0.25% to 1.5% annually. The fees come right out of the savings in your account, and there is no requirement to notify you about them. In the past, when you got your quarterly 401(k) statement in the mail, you didn’t see a line-item expense labeled “fees.” That changes this year with the regulations.”
Advisor IQ, How Fees Devour 401(k)s 05/23/2013 – 9:00am

Do-it-yourself investors often bring up the topic of “no-load” mutual funds. What is the difference, you wonder.  It is true a no-load fund is without broker commissions, however, all of the other costs described above can still be charged.

If this is the case, why wouldn’t the returns advertised by mutual funds be much lower?  Mutual funds are allowed to publish their average returns without showing the deduction of all fees. They are only required to disclose the expense ratio. The transaction costs, which can be the largest single expense in a mutual fund, are not deducted from the mutual funds reported rate of return.

Charles Trzcinka, an Indiana University finance professor who helped conduct a study of 700 of the largest mutual funds  “But to a remarkable degree, investors under performed their funds’ reported returns–sometimes by as much as 75 percentage points a year. The sheer magnitude of the difference we discovered between the total returns earned by funds and the results captured by the average shareholder is “shocking and tragic,” charles said. CNN Money, What Fund Investors Really Need To Know OUR EXCLUSIVE STUDY OF MUTUAL FUND RETURNS SHOWS WHICH ONES REALLY MADE MONEY FOR INVESTORS AND WHICH ONES TOOK SHAREHOLDERS FOR A COSTLY RIDE, June 1, 2002

If you own mutual funds and do not know what you are paying for your investment, we can conduct a fee analysis that will assess your cost of ownership for your investments. This can also be coupled with a risk analysis to let you know how much market exposure you have in your portfolio.

If you are unable to access any of the referenced material above online, call 954-745-4966 to request a copy.