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Should I Stay With No-Fee Funds in My IRA?

Question: I have an IRA with my spouse’s employer, and I pay no fees as long as I trade only select funds. But my profits have only been 2 percent in the past 18 months. Should I make a switch or stick with no-fee funds?

– David Hippensteel, Milwaukee

Answer: It’s tempting to think you get what you pay for, feewise. But advisers caution against judging returns after such a short performance period, especially one marked by roller-coaster markets. And though you’re not paying sales commissions, experts say high expense ratios may be nibbling at your gains. Before switching, compare funds’ total costs, says John Goddard, a financial planner in Cambridge, Mass. Moving to one with a sales charge, he says, “may or may not result in higher returns, but it will definitely result in higher costs.”

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    • I agree that everything expect (1) and (4) are minor points. I included them for completeness\’ sake.(1) You are wrong on this one. The actual cost you are paying is interest AND principal, and in return for that your equity in the property goes up. You have factored in the second part (adding principal paid to net equity), but not the first. You are effectively paying yourself, but you still have to shell out the principal amount every month, while the renter doesn\’t. So in effect your spreadsheet has double-counted the benefit of principal pay-downs.Here is the issue: your actual (approximate) costs total $2100 plus $350 for principal, plus $400 for maintenance. The renter only pays $1600. The net effect of this is the owner pays $1250 more per month in cash flows, and at the same time, the owner\’s equity in the property goes up $350.(4) You\’re missing the point. The owner gets to itemize the interest he pays, which provides a tax benefit (if done correctly on his W4 s, he gets this back every month, not once a year). The renter gets to use the standard deduction, which you haven\’t included here. You\’ve effectively assumed that the renter gets no tax benefit when this is usually wrong. Rate this comment: 0 0

    • Ten years ago one could still find the expensive empty lot in the city. I can’t reemebmr the last time I saw one. House s and bowling alleys are being bulldozed for townhomes and condos. I realize some are empty, but find it hard to believe whatever number is being found in a comparison to years ago for the city of Seattle is accurate that doesn’t show this gain in population. In fact ,with the intelligence shown on this blog I would find it difficult for anyone to argue with this. Obama landslide baby. That was for you Softwareengineer or far right wing nut as I look at you, except for the part about industrialization. Back to my next beer and the fun of the depressed look on FOX news. Rate this comment: 0 0

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