I've read plenty of articles and seen commercials on television about those evil IRA and 401(k) management fees. How one or two percent can add up to tens of thousands of dollars over the period of time until we retire. However, I find it kind of funny that people get so fired up about1 or 2 percent in management fees. Do I like these costs? No. I've looked at other investments that tend to avoid such fees though and I've found that the costs to carry these investments are often built into them whether we actually consider these costs "fees" or not.
I think that a lot of people look at profits or losses on a home as the purchase price minus the sales price. However, there are a lot of carrying costs -- just like fund management fees -- that can eat into just how profitable a home might be. From property taxes, and carrying costs like maintenance, upgrades and repairs, to sale costs like agent commission and closing costs, a home can rack up some serious bills during ownership. Our family paid tens of thousands of dollars to own our first home for just a few years, and in all honesty, I'd rather have paid a fund manager a few percentage points to "manage" my retirement account than have to deal with the time, trouble, cost, and effort that went into my own management and maintenance of a home.
But what about commodities like hard metals? Owning silver or gold seems like a low maintenance way to stash some cash and avoid management fees in the process. However, this isn't always the case. If I have to rent a space such as a safety deposit box to store such items securely, it could run me $100 or more a year, which while maybe not enough to break the bank, is an associated cost nonetheless.
And what about the premium I could have to pay to buy these metals or the commission I might have to pay to sell them? Many pawn or coin shops might only offer 70 or 80 percent of the spot value of such metals to buy them back. So while I might not incur the annual carrying costs of certain stock or bond funds, fees could hit hard with metals at the point of sale.
So with all these other investment options having associated carrying costs or fees, what am I supposed to do, just throw my hands up in air and say, "I'll just put it all in cash!"? Well, that's fine and dandy, but then there is inflation to deal with. And with the federal government claiming an annual inflation rate of somewhere around 1 to 2 percent (our personal rate has actually been closer to 5 percent lately), isn't that kind of the same as an annual management fee cutting into my retirement account?
I'm Actually Getting off Light
In my view, and while I don't particularly like management fees, I'm not as fired up about them as some other people. What are these companies supposed to do, manage our accounts for free? That'd be nice in a perfect world, but all things considered, such fees aren't always that terrible when compared to other options.
If I consider my last home and current home, I'm paying about 2 percent of the purchase price a year in property taxes. I'm paying another 1 to 2 percent of the purchase price in maintenance and repair costs. And to keep my money in cash, I'm paying close to 5 percent right now by having it eaten away by inflation. So all things considered, I guess I'm reasonably content to pay management fees, even if I don't really care for them.
*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.
More From This Contributor:
The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
- Financials Industry