This week I received an email brochure offering for sale a beautiful Cessna Citation Jet. Of course I am not now nor will I ever be in the market for a jet, but they are fun to look at. The brochure showed a gorgeous 1999 model and the asking price was just a fraction of what it sold for originally. In fact, this beautiful jet could be picked up for less than the cost of many single engine piston airplanes.
 
I showed the brochure to Launa and jokingly asked if she was ready to move up to a jet. She was in disbelief at the low price and wondered what the reason might be.  I explained to her what all pilots and plane owners know about planes, and jets in particular, especially 18-year-old ones. It isn’t about the cost to buy, it’s about the cost to own. As jets age, the cost to maintain them grows dramatically until the point where it simply is more cost effective to buy a new one. Airplane magazines are riddled with beautiful older jets that are basically being given away because the owners can no longer justify the maintenance costs. An unsuspecting owner who is taken in by the cheap price tag may be in for a very expensive surprise.
 
I recently worked with a client who had purchased an investment years ago from an advisor who made a point of emphasizing the low acquisition cost. Unfortunately, the ongoing high cost of ownership had been a serious drag on performance. This individual had failed to account for, or not been properly advised on, these high long term costs.
 
Investments have costs associated with them. Sometimes these costs come in the form of upfront commissions and sometimes they are charged by the advisor as annual management fees. Many wonder which method of paying for services is better for the client. With each situation I encourage people to consider the overall cost of ownership, and the expectations of the advisor involvement. If an investment is long term and requires little management, an upfront commission may be the most cost effective option. If you are going to want ongoing management and advice, it may be better to consider a fee-based structure that encourages an active relationship with your advisor.
 
Far too many investors have made the mistake of trying to save a few bucks up front in exchange for getting themselves into a situation with higher ongoing costs. Like the beautiful Cessna Citation in the brochure, the initial price seems very attractive, but failing to take into account the long term high operating costs could doom an unsuspecting buyer. In airplanes and investing, we must always consider not only the cost to buy, but maybe the even more important issue, the long term cost to own.