Investment Resolution: Double-Check Fund Fees

By Dian Vujovich

Even though mutual funds have been around since the 1920s and there appear to be zillions of them to choose from, don’t let their popularity blind you to the cost of ownership.

For those who are fans of funds, no matter what’s going on in the marketplace or who the fund manager(s) is, there are always fees and expenses that need to be paid each year by fund shareholders. These fees and expenses, however big or small, average roughly around 1.5 percent a year and reduce the return on your investment. Keep funds in qualified retirement accounts and there can be additional fees to pay as well.

So with a year like 2008 behind us, (the average equity fund was down 39.5 percent, according to Lipper Inc.) one good New Year’s investment resolution would be to take a long look at each and every mutual fund you’re a shareholder of and find out the following:

• What the exact name of the mutual fund is that you’re a shareholder of. Now don’t laugh here. Instead, ask five of your friends what the names of the mutual funds that they own are. I’d be amazed if one of the five will accurately be able to tell you. We’re all kind of dumb when it comes to knowing precisely where our investment money is held.

• Find out what the fund’s annual management fees and expenses are. This info will be in the fund’s prospectus. But since few investors read them, you can get that data online at mutual fund sites like Morningstar.com or Yahoo.com/finance. Or, call the fund’s toll-free number and ask. While you’re checking, inquire about whether or not the fund charges 12-b-1 fees and if so how much they are. Again, these are all annual expenses that come out of the fund’s assets and hence lower a fund’s returns.

• Oh, do you know whether or not the fund you’ve invested in is a load or no-load fund? And, whether a sales charge is taken out each time you add money? Better check.

• Finally, how about those retirement accounts of yours. How much are you paying each year for the privilege, and I use the term loosely here, of having a personal IRA account or a 401(k)? Can’t tell you how many employees think that their 401(k) accounts are free and don’t cost a dime each year. Wrong.

As for IRAs, if you’ve only a few hundred or a few thousand dollars invested in an IRA, more likely than not you’ll be faced with annual bookkeeping fees from the bank, brokerage or mutual fund family holding those accounts. So, if your account tally hasn’t cleared that organization’s money hurdle, and your investment choices haven’t been financially rewarding but the fees still exist, you might begin to kind of wonder whether the accounts are really worth it. And they might not be.