Anyone with a 401(k) retirement plan has been painfully aware of the gyrations in the stock market in recent years. The market has come back up lately, but the economy is still in low gear, so many analysts aren't too bullish in the short term. Also, treasuries and CDs are offering tiny returns.

So what's the average American trying to save for retirement to do? Answers are percolating at an annual economics retreat in Maine.

Every year in August, some of the nation's top economists, money managers and some Federal Reserve officials gather in the woods up near the Canadian border. They do some fly-fishing, they schmooze, and they talk shop about investing.

This year, one of the topics of discussion is fees. The takeaway, especially these days, is that you want to avoid paying big ones.

The 'Compounding Effect'

John Mauldin, president of Millennium Wave Advisors in Dallas, says annual mutual fund fees of 1 percent or 2 percent might sound small. But consider the advisers' fee, which is also required every year. Those, Mauldin says, are a very big deal.

"The difference of 1 to 1.5 percent in commissions on an annual basis over 30 years is the difference between $1 million and $2 million at the end of the time period," he says.

In other words, paying too much in fees is the difference between retiring with half a million or $1 million.

"It's a huge compounding effect. It only seems like a small amount today, but it compounds over time," Mauldin says. "I think Einstein said that compound interest is the eighth wonder of the world."

Keeping Down Costs

Some people here think there may be a ninth wonder of the world — at least for people focused on investing. It's called an exchange-traded fund. These have come along in recent years, and a lot of people invest with them now, but many other people have no idea what an ETF is.

"It's a remarkable instrument. It has introduced democracy to investing," says David Kotok, the chief economist at Cumberland Advisors, a firm that advises individuals and big pension funds.

Kotok says ETFs are like index funds — they track whole sectors of market, such as the S&P 500. But Kotok says ETFs can be traded more easily, like stocks can be traded. Also, you can target the energy sector, bonds, commodities and real estate — just about anything. Kotok says ETFs can have even lower fees than index funds.

"I have some clients where we have five or six ETFs, and we meet their entire investment objective at very, very low cost," he says.

Kotok is actually so excited about ETFs that he wrote book about them. It has a sample portfolio in it where the annual fees are just 0.12 percent, which is extremely low.

Vanguard, an investment management company that offers a lot of ETFs, says you have to look at the fine print, though. Sometimes an ETF is cheaper, and sometimes an index fund is cheaper.

Beating The Professionals

Either way, many people at the Maine retreat say ETFs or index funds are a better bet than actively managed mutual funds, where you pay money managers to pick stocks. Jim Bianco is president of Bianco Research, which has hundreds of big institutional clients.

"We did a study and found that last year was the worst year in the last 14 years for the average mutual fund as far as underperforming their benchmark," he says.

Martin Barnes, chief economist at BCA Research, says that last year, 80 percent of the time, mutual fund managers who picked stocks and invested in big U.S. companies had returns that were worse than the index in the same sector. That means odds are you would have been better off in just a basic index fund.

"Who knows what the percentage of advisers is or brokers? I mean ... these are the sophisticated guys," Barnes says. "We're talking about the guys at Wellington, the guys at Fidelity, the guys that are running the big money ... they can't beat the index."

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