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Management fees can shave thousands off your investment returns over time—Here's how to decide if they're worth it

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If there isn't one, single cardinal rule in personal finance, this one certainly comes in near the top of the list: If you want to save money on something, do it yourself.

But sometimes, it's well worth the money to delegate. Paying someone to assemble IKEA furniture is a good idea if the assembly process always leads to a fight between you and your significant other. And if something went wrong with your plumbing, it would be cheaper to get under your sink with a wrench — but would you even know where to begin?

The same applies to investing for retirement. The DIY route is your cheapest option. But if managing a portfolio sounds like a nightmare or if you don't understand the first thing about investing, there are plenty of people and companies able to help out.

But then it becomes a question of how much better they'll do than you would with your money. And how much you'll have to pay for it.

"If you have a financial advisor or a robo-advisor, you're paying a management fee," says Tyler Ozanne, a certified financial planner and principal at Probity Advisors. "There might be some intangible value that they're providing for their fee. But it does eat into your return. And if you're young, those fees compound."

The DIY route doesn't make sense for everyone. But if you're considering enlisting some investing help, here's what you can expect to pay, and what you'll likely get in return.

Robo-advisors vs. the real thing

If you're a cost-conscious, internet-savvy person, you might look for investing help from a robo-advisor. These automated investing services are offered by a variety of firms, but they generally all work the same way. You tell the firm about your investing goals and tolerance for risk, and their algorithm puts you in a low-cost, diversified portfolio geared toward your needs.

Services vary from there. Some robos will perform tricky buy-and-sell maneuvers to minimize the taxes you'll owe on your investment gains. Some allow you to view all of your external accounts under one dashboard. Some allow you to invest in socially-conscious funds.

No matter which one you choose, expect to pay a management fee amounting at most to a fraction of a percentage point per year on the total value of your account.

Some firms, such as Acorns and Ellevest, charge a flat monthly dollar figure rather than a percentage. Others, such as SoFi and Charles Schwab, don't charge a management fee. Betterment and Wealthfront, the two top-rated robos at CNBC Select, each charge 0.25% of assets.

Whether you think you're getting value for that money is up to you, says Doug Boneparth, a CFP and founder of Bone Fide Wealth in New York City. "A lot of heavy lifting is taken off your plate, and plenty of people find tremendous value in that," he says.

Where robo-advisors fall short, he says, is the ability to consider your investments as part of a larger, holistic view of your finances. "Good financial advisors approach things from a planning-first lens, and there is potentially unlimited value in that," he says.

Advisors can consider your investments in the context of other financial factors robo-advisors couldn't take into account, Boneparth explains.

But human advisors can cost significantly more. Under a traditional model, some real-life advisors will charge you 1% of the assets of yours they manage. Others charge a flat annual fee that could range from a few hundred to a few thousand dollars, depending on the advisor and the complexity of your financial situation.

How advisory fees deplete your returns

When shopping for an advisor, robotic or otherwise, it's important to consider the price you pay for advice. Say you're leaning toward Betterment or Wealthfront. Each firm's annual fee of 0.25% means you'd owe $25 on an account worth $10,000.

While that may not seem like much, remember that money you spend on fees compounds over time.

Consider an investor who makes an initial investment of $10,000 and contributes $5,000 per year thereafter. She earns an annual return of 7% and pays 0.25% in management fees. (For this exercise, we'll ignore the fees charged by the funds she owns.) After 40 years, her portfolio would be worth more than $1.1 million — a hefty sum, but still $82,000 less than if she had earned the same returns investing by herself.

Up the fee to 1%, and her portfolio comes in at less than $1 million and the amount left on the table from fees balloons to nearly $300,000.  

But depending on what kind of investor you are, shelling out for a management fee could well be worth it. For one thing, there's no guarantee that you'd earn a similar return to an investing pro in your own portfolio.

And if hiring help is the difference between getting started as an investor and sitting on the sidelines, just about any fee is worth it, investing experts say.

"If you'd have earned 8% and you pay a 1% fee, you're still at 7% net. That's a lot better than the 1% you're earning in your bank account," says Ozanne. "It's more important to save and invest than it is to avoid fees."

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