You get what you pay for ...

So I have a young friend at work, someone who has only been teaching a couple of years. He's a terrific guy, an excellent teacher, and very bright. We've worked together some, and it's been fun to see his enthusiasm.

He sees me as something of a mentor, I think -- at least in journalism, where we collaborate a bit. Recently he asked my advice about investing for the future, because I'm Mr. AP Economics and all that ... so, I tried to offer him my take on his investment plan, to which he's contributing monthly.

His question to me was whether he was paying too much in fees to his investment company. Here was my answer (I've changed the name of his fund company to XXX; I also reference Vanguard as an alternative, but there are certainly others out there that offer no loads and very low fees):

Yes, I think you're paying too much. .

Let's say you invest $750 a month for 40 years and make an average annual return of 8 percent (yes, I know that's high, but stick with me). In 40 years, your account will have $2,635,710.82 in it. And let's further assume that this is happening in a Vanguard Funds S&P 500 index fund, which has annual fees of 0.17 percent. That means your money is actually earning 8.17 percent per year, but Vanguard skims off 0.17 for its trouble.

Now, let's assume you're putting the same $750 a month into your XXX funds. It would take you three years to get to $25K if you're starting at zero -- until then, you're only earning 3.97 percent because XXX initially skims off an astonishingly high 4.2 percent. (At the end of three years, you'd actually have a bit more than $28K.) After you hit $25K, your XXX fund costs reduce by two percent, so your rate of return would bump up to 5.97 percent for the rest of the way, as XXX is still skimming off 2.2 percent each year. Take the $28K+ account balance and continue adding $750 a month --  at the end of the same 40 years, you'll have $1,480,577.98, almost 50 percent less than what you'd have with Vanguard. 

So I guess the question is this: is your relationship with the XXX guys worth more than $1 million to you? (Answer: I doubt it.) 

This is obviously a simplistic example (I didn't mess with the whole "lesser of $30 or 2 percent" thing, I just assumed a 2 percent charge went away after three full years), but the bigger point is this: fees matter. And if you can dramatically reduce your fees by going to a no-load, low-fees fund company like Vanguard, which is cheaper across every type of mutual fund than the rest of the market, the difference in fees goes to your bottom line instead of their Lamborghini payment. 

So my advice is to switch, quickly. If there are big surrender fees for another few years with XXX, maybe wait until then to take that money out. But don't put any more NEW money in XXX. Instead, open a 403b7 account with Vanguard and start putting your new money there. When the surrender fees go away with XXX, you can switch that money over to Vanguard.

Hope this helps. ...

Of Tweets, cellphone calls and wanting to be loved ...

So I can’t help but feel bad for Manti Te’o.

I mean, put yourself in his shoes. You’re a talented college football player, your team goes undefeated in the regular season, and you make it to the national championship game. And tragically, you lose your grandmother to cancer along the way, and your girlfriend.

Only it turns out, your girlfriend doesn’t actually exist. She’s a fiction, an internet and cellphone phantasm created by “friends” who apparently wanted you to be the butt of some kind of weird, crazy prank.

I’m sure there are plenty of revelations to come in this story. Maybe Manti Te’o is a more active participant in this whole bizarre tale than we’ve been led to believe so far, but here’s the thing – if he really is the victim in this strange saga, then all he’s really guilty of is believing and hoping there was someone on the other end of the phone calls and the Tweets who wanted to connect with him in a meaningful way. All he’s guilty of is wanting to be loved.

But how do you love someone you’ve never actually met? How do you love someone who is nothing more than a disembodied voice and a series of 140-character messages?

***

Sometimes, when I read the Old Testament, I feel sorry for the nation of Israel. You can’t help but come to the conclusion they were pretty much a bunch of knuckleheads – God gave them the rules of the game, but they messed up over and over and over again.

The leaders of Israel – Abraham and Isaac, Jacob and Joshua, Moses and David – appear to have regularly had personal encounters of various kinds with the God of the universe. But the regular folks – the shepherds, the farmers, the laborers – seem like they’re mostly flying blind. Remember when Moses climbed Mt. Sinai to talk to God? He brings back the 10 commandments to share with everyone, but while he’s gone, the people of Israel give up any semblance of faithfulness.

When Moses is away, the people will play. Because how do you love someone who is invisible, and who only speaks to a select few?

I think God knew it would be really difficult for people to follow him when they couldn’t see him, when all they had to go on was the testimony of their leaders and some words on paper – like Manti Te’o and his fictional girlfriend, Israel had the ancient version of Tweets and cellphones, but what it needed was a face-to-face encounter with God Himself.

Which is why I love the Christmas story. At its heart, the story of Christmas is the story of God becoming one of us, of God in the flesh, of God with skin on. It’s the story of Jesus becoming the visible expression of the invisible God.

When I wonder about the character of God, about who He really is, about what He really stands for, I turn to Jesus. I read about how he interacted with people, how he loved his disciples, how he forgave the woman at the well, how he turned water into wine, how he chased the moneychangers out of the temple, how he calmed storms and healed the sick and fed 5,000 hungry souls with a little bread and some fish.

It’s ironic, really – God’s deity is clarified and sharpened when it’s filtered through His humanity. God knew we needed more than Tweets and cellphone calls to really have a relationship with him – we needed a face-to-face, flesh-and-blood encounter.

And so he gave us Himself – He gave us Jesus.

And that makes all the difference.