Investment Princple Articles
Articles are written with the goal to educate and simplify the
fundamental financial and investing topics. Information gathered for these
articles are researched from credible websites, texts, and notes.
How to Reduce Investment Fees
A piece of advice you are rarely going to get from your broker is about how to reduce your investment fees. That’s right, your broker (or financial advisor, accountant, etc.) isn’t getting rich from investing their own money it is from servicing yours. These fees come in several shapes and forms, and this article is going to show you how to recognize and reduce some of them.
Mutual Funds
The fees in mutual funds come in a form called loads. A load is simply a fee or commission charged by the managers for running the fund. Sometimes there is an initial cost for joining a fund, and most often there is a percentage taken from whatever money you deposit to or withdrawal from the fund. These loads can be front-end loads, fees charged upon the money you put in, or back-end loads, fees charged for the money you take out. So do no-load mutual funds always outperform load funds? Not always, but if the underlying assets are all of the same class they usually will. Also look for any 12-b1 fees that might be in the fund, as they don’t contribute much but can take away up to 1% of your net assets in the fund.
Stocks
Do your research on a brokerage firm and find out how they charge for transactions. The online average for a stock trade is about $10, while a full service broker is closer to $30. Therefore, if you don’t need the extra services then don’t pay for them. You may also be able to find a broker that offers transactions in sync with your investing strategy, which can save you money. If you are an aggressive trader you probably want to find a broker that offers a certain number of free trades or low cost trades. Long-term investors should watch for inactivity fees. If you are a smaller investor you want to look for account minimum fees. Some brokers also charge the 12b-1 fees, so watch for that. Simply put, know your investing strategy before hand and do your homework on the broker.
ETFs and Currencies
Generally ETFs offer lower management fees than mutual funds. ETFs engage in far less trading than mutual funds so this makes sense, but sometimes they do trade. When this happens the ETF charges investors a smaller amount, around .3-.5%, which comes out of dividends. Still it is important to know how much these fees are and to reduce them when possible. With currencies you simply want to find the smallest bid-ask spread, as this is the only fee and all forex services are usually the same.