Investment fees add up to more than a bag of peanuts

You may have noticed that we took our summer vacation a little early around here. Despite the predicted extra-long delays this travel season and the predictably packed flights, once we actually got airborne we couldn’t help noticing how patient, understanding and long-suffering our flight crews were. Until it comes to their retirement, that is.

Thanks to a recent lawsuit, Delta Airlines employees are creating a lot of turbulence for the company that provides their 401(k) plan, investment giant Fidelity.

Apparently Delta wanted to make independent, professional investment advice available for their plan participants. They chose a leading advice provider (not us, but a firm we respect), plugged them into Fidelity’s tech-and-management “platform,” and opened the advice window for business. Easy stuff.

The trouble is, according to the lawsuit Fidelity “wanted a piece of the action,” allegedly demanding a slice of the fees their advice provider charged investors. Nobody actually got dumped in the East River. But gangster lingo aside, this secretive requirement did drive up the total cost of the advice service. Which in effect took retirement money out the pockets of our friendly flight attendants.

Apparently people who work for airlines know a thing or two about tacking on extra fees. You should too. When they add a couple of bucks for a “destination fee” or make you shell out $4.99 for forgettable movie, it’s still real money, even on top of a $700 fare.

Investing is the same way. Fees are expressed in “basis points,” each a hundredth of one percent, typically based on your entire account. That may sound microscopic. But if your account is earning, say, 5% a year, a fee of just 25 basis points on the whole thing eats up 5% of every dollar you actually make. Repeat it every year and it compounds over time, becoming even more significant.

This doesn’t mean you shouldn’t pay for things like advice when you invest, any more than you should try to sneak that big suitcase into the overhead bin. But you should scrutinize every fee. If everyone took the same care with their investment choices that we do buying plane tickets, we’d all be a little richer, and the friendly skies might be a little friendlier.

Image courtesy Krista via Flickr Creative Commons