What if those fees paid off?

The illustration above assumes that the chosen mutual fund provided no value for its 1.5% fee. This is consistent with the overwhelming evidence that the majority of actively managed funds (those that pay a management team to pick the investments within the fund) do not outperform a relevant index fund (which just buys all the investments within the index, and saves a lot of money in the process). But approximately a third to a quarter of actively managed funds do outperform index funds. In these cases, the funds earned the fees they charged you.

Or perhaps you're paying an investment advisor, who is helping with your decisions about asset allocation - i.e., how much to invest in U.S. stocks, international stocks, bonds, cash, etc. Plus, the advisor might be providing financial-planning services, such as calculating whether you're saving enough for retirement or offering tax-saving tips. Assuming the advisor is providing good advice, this may also be a case where the fees are more than justified.

But if you've chosen either or both routes - investing in actively managed funds and/or hiring an investment advisor - make sure you're keeping tabs on the costs and benefits. Empirical evidence as well as my own experience tells me that many investors are paying too much for too little. Or, again in the words of Schoolhouse Rock, “Hey! That's not fair, givin' a guy a shot down there.”

(“Darn, that's the end.”)

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