Straight Outta Context

 It is preposterous not to include the impact of fees when deciding upon an investment. This is the main reason most teachers’ 403(b) plans are so horrifying. It is almost impossible to make a positive real return when costs exceed 3-4% on your investments.

While this statement comes right out of Captain Obvious’ playbook, a major financial magazine seems to take an opposing view.

In this week’s edition of Barron’s, their annual fund rankings did this very thing. They ranked mutual fund companies with no regard for the fees they charge.

“Our aim is to measure manager skill, independent of expenses beyond annual management fees. That’s why we calculate returns before any 12b-1 fees… fund loads or sales charges aren’t included in our calculation of returns.” Barron’s 2/8/2016

The definition of putting something into context is to put it into something where it makes sense, or is understandable. Barron’s definition fails miserably in this regard.

Barron’s criterion for evaluating a fund family or a variable annuity commonly found in 403(b) plans are disingenuous.

Imagine if the average teacher, firefighter or policeman viewed their purchases of their wants, and needs in this illogical fashion?

The average trip to the grocery store would be much more interesting. Forget about ShopRite’s daily specials. Go straight to Whole Foods and indulge in the grass-fed Filet Mignon. Taste, not price, matters!

Worried about college costs? No need for sleepless nights. The $70k price tag at Boston University will have no effect on your finances. Forget about community college, we are following Barron’s advice and focusing on the product and not the costs involved. Hello, luxury dorm!

This gets even more fun. Sick of those McRib’s?? Fear not, since we are removing the cost factor, have no guilt over that $100 Sushi Roll.

Vacation? Worried about the Norovirus on the discount cruise line? Forget about it! Barron’s has created a brand new paradigm of financial decision making. Swiss chalet, here we come!

Heck, you can even get your favorite sports teams in on the fun. Salary cap? No need for the Yankees to worry about this. $200 million over the salary cap? This will have no effect upon the team’s finances. How liberating it is to buy new players with no concern for Major League Baseball’s luxury tax!

While I am being overly caustic (even for me) the point I am trying to make is not very funny at all.

If anyone tells you fees don’t matter regarding your investments, they either have an agenda or are financially illiterate. These two qualities are pretty low on the list for someone whom you might consider handing over your finances to.

It is very easy to see how many teachers hold enormously expensive products in their retirement portfolios.

If an international, widely suspected financial publication says fees don’t matter, it is not surprising a second grade teacher owns a variable annuity charging 4%.

If this was put into proper context, we could give Barron’s premise a reality check.

For most investors, fees are something that you can control and matter quite a bit. According to Morningstar, “If there’s anything in the whole world of mutual funds that you can take to the bank, it’s that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.”

I must admit, life would be much more fun if we all prescribed to Barron’s alternative universe viewpoint.

Unfortunately, for this to work we would also need to believe another discredited theory that deals with something about money growing on trees!