Is investing in your company 401(k) or an IRA still a good idea? I have gotten a lot of questions relating to this over the past few months. So in the weeks to come I will go over some of the hot topics relating to your individual retirement savings plans and hopefully shed a little clarity on the subject.
One hot topic in the financial news and investment company ads lately is the fees we are paying in our retirement accounts. This became a story after a 2012 Dept. of Labor ruling required that, among other things, plan sponsors are now required to disclose, in plain English, the amount of fees you are paying in your account.
Up until the ruling, these fees were hidden since they came off the top. They were never disclosed separately in your investment performance. These fees cover such things as administrative costs, trading costs, and marketing costs. After all, who do you think pays for those Super Bowl ads!
While most of the press is surrounding some widely quoted figures such as that a middle-income, two worker family can pay over $150,000 in fees over their lifetimes, I find more troubling an AARP survey that found 65% of 401(k) account-holders had no clue they were even paying fees, and 83%, or 5 out of every 6, didn’t know about or understand the many fees and expenses that they are being charged.
While understanding fees is important, fees are not necessarily the enemy. Sure, we want everything for free but free investments are just like free advice, the real cost is always much higher than the price paid.
The subject of fees is more complex than what is being presented by the media. We can’t analyze the validity of these costs without looking at the value we are getting for the price we are paying. This comes down to performance and we’ll get to that subject in an upcoming blog post.
Remember, like most issues we discuss, success comes from knowledge. Eliminating the noise of the media and understanding what’s beyond the headlines can be your key to financial success.