High-cost mutual funds can eat up half your money in fees alone


A new study profiled in The Los Angeles Times shows that investors can lose up to half of their contributions to fees when they’re in high-cost mutual funds.

Syndicated financial writer Kathy Kristof reports that a self-help portfolio management group called MarketRiders has found the typical investor who puts $4,000 annually into an IRA can lose 54 percent in fees alone each year.

The takeaway here is simple: Don’t buy your investments through full-commission brokerage houses or an insurance agent.

Instead, buy your investments commission-free through discount brokers. Vanguard, Fidelity and T. Rowe Price are all some of Clark’s favorites. Vanguard, for example, typically has fees that are a mere one-tenth what you’ll pay with a full-commission brokerage house.

Remember, the three fees you most commonly find with commissioned investments include the following:

– A “load” (the commission itself)
– 12b-1 fees
– Annual management fees

Keep in mind that most mutual funds have some kind of annual management fee. But you want to keep them below .5 percent. By comparison, the typical high-cost mutual fund has an annual management fee of 1.5 percent. That’s three times too much.

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