Ok, you're not a self-motivated investor. You don't automatically turn to the business section of the newspaper. You read Sports Illustrated...

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OK, you’re not a self-motivated investor.

You don’t automatically turn to the business section of the newspaper. You read Sports Illustrated, Sunset, Cooking Light and a half-dozen other magazines. Money, Smart Money, Kiplinger’s, Forbes, Fortune or Business Week have never been among them. What do you do?

You’ve still got to invest for the future. So you look for help. And you’re willing to pay for it.

If that sounds like you, then you have a lot in common with C.G. She wrote:

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“My husband and I are in our early 50s. We each have a ‘managed account’ with an investment firm. We have had these accounts since about April 2002. These accounts have been funded with 401(k), pension and retirement accounts from previous employers.

“My account is approximately $178,000. My husband’s account is approximately $250,000. I am presently not working. My husband is still employed and is currently contributing 18 percent to his 401(k).

“My question concerns the fees we are charged. Currently they are charging at a 1.75 percent annualized rate on each account. That’s well over $200 each month for each account. While I like knowing that my account executive is watching over our accounts, I wonder if we are paying too much for this service.

“I guess the answer could be found in the growth performance of these accounts. We mostly have increases in account balances each month. But with the large deposits that we have made, it’s hard to determine what the actual growth has been on these accounts.

“We will admit that we know little about financial matters. However, we know how to save and want to be sure we are not overpaying for the privilege of having someone else manage the money. Our money is being invested in a mixture of load and no-load funds, with about 68 percent going into equities and 32 percent going into bond and money-market funds.

“How much should we be paying?”

The one-word answer is “less.” The two-word answer is “much less.”

The reason is a simple truth, one seldom discussed by the investment/retirement industry. Investment fees can be mutually exclusive with long-term investment performance. When an investment firm adds an additional management fee to an underlying portfolio of mutual funds, it reduces performance.

You can measure the reduction by checking the distribution of performance among comparable mutual-fund portfolios. A portfolio that is 68 percent equities, 32 percent fixed-income is similar to what Morningstar calls a “moderate allocation” portfolio and what used to be called a “balanced” fund.

Over the 15 years ending March 31, here is how returns were distributed:

• Funds in the top 10 percent returned an annualized 11.03 percent or better.

• Funds in the top 25 percent returned an annualized 10.22 percent or better.

• Funds in the top 50 percent returned an annualized 9.25 percent or better.

• Funds in the top 75 percent returned an annualized 8.13 percent or better.

• Funds in the top 90 percent returned an annualized 7.03 percent or better.

Note that the difference between the top 25 percent and the bottom 25 percent is only 2.09 percent a year — not much more than a 1.75 percent additional fee.

A manager selecting funds that provided a top 10 percent performance, before fees, would drop to a 50 percent manager after a 1.75 percent annual fee. If the manager selected a fund portfolio that performed in the 50th percentile before fees, performance would be somewhere between the bottom 10 percent and bottom 25 percent after fees. Either way, a 1.75 percent annual fee is a “can’t get there from here” fee level.

Such high fees are frequently defended as being “normal” compared with competitors. No investor should tolerate such lame arguments. They are an admission of how the investment industry has willfully failed to price its services so they don’t have an unreasonable effect on your investment performance.

Questions about personal finance and investments may be sent to Scott Burns at The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; by fax at 214-977-8776; or by e-mail at scott@scottburns.com. Questions of general interest may be answered in future columns.