Do you know what you are really paying in investment or mutual fund fees? It may be more than you realize.
U.S. stock mutual funds are required to disclose certain fees, but there may be undisclosed trading fees that can average an additional 1.44 percent. That adds up over the life of a portfolio. Take the time now to understand what you’re paying and how much you’re paying. Managing YOUR money is not the time to be timid about asking questions. Make a list before you talk to your broker or financial advisor. You deserve to have accurate and complete information about your investments and the fees you are paying.
Fee information, at least for your 401(k) plan, is now more readily available. A new federal rule that took effect on July 1 requires 401(k) plan providers to disclose associated fees to plan participants by Aug. 30. The Department of Labor implemented these requirements to improve transparency and help you to compare and shop for 401(k) plans.
A benefit of having clear information about your 401(k) fees is that it will help you figure out how big of a bite they are taking out of your overall portfolio. Although basic 401(k) fee information has always been available, this is the first time detailed information — manager fees, administrative costs per investment option, record keeping and accounting fees, transaction fees — will be available on your 401(k) statement. Starting this summer, you will see this new information on your statement. This should enable you to review your plan provider’s various investment options and see if you can switch to comparable assets with lower fees.
Your 401(k) can include passive or active investments:
• Passive investments don’t involve “active” selection of individual stocks by the portfolio managers. Fees here are around 0.5 percent of your total assets per quarter.
• Active investments do involve the managers in selecting stocks in an effort to outperform the market. Fees here are around 1 percent of your total assets per quarter.
The fees sound small, but they do add up. One study has shown that the average median-income household with two wage earners can pay up to one-third of their portfolio in these fees over a lifetime. A bigger issue is that about 30 percent of 401(k) holders don’t even realize they are paying fees.
The new 401 (k) fee disclosure requirement will make it somewhat easier to compare apples-to-apples and oranges-to-oranges, but it may remain a challenge for the average employee to:
• Determine which fees on the statement apply to your investments and if switching to comparable assets can lower those fees.
• Compare the fees you’re paying with the fees of other 401(k) plans.
You may want to take your statement to your financial advisor for help in reviewing the figures. The bottom line is that your 401(k) fees and investment options should be more transparent allowing you to make more informed decisions.
Ask the questions. Your financial future may depend on it.
• Cynthia K. Fick is founder of Financial Life Planners LLC in Ahwatukee Foothills. Reach her at (480) 346-4073 or firstname.lastname@example.org.