Show Me the Fees! Why Investment Fees Matter (And How to Get the Best Deals)
If you're saving or investing, you'll want to make sure you're saying "show me the fees!" Here's why fees matter and what you can do to reduce them.
A recent study found that only 54 percent of Americans invest in the market via individual stocks, mutual funds, or retirement plans.
Investing is a great way to secure long-term wealth, but it's important to understand the logistics behind how it works. Make sure you're saying, show me the fees, before plunging into any investment decision.
Let's get into what you need to know!
Why Do Fees Matter?
All investments come with fees. Whether you're dealing with low-cost index funds or cryptocurrency brokers, fees are simply part of the money game. While they aren't necessarily something to be upset about, it's vital that you pay attention to them.
Simply put, the higher the fees and cost of the fund, the lower the return you'll generate. That's because the fees come from the top of the fund's overall return.
Even though the difference between a 0.3 percent and 2 percent fee may not sound like a lot, it can mean thousands of dollars lost depending on the lifespan of your investment.
Types of Fees
Brokerage fees: These refer to the annual fees needed to maintain a brokerage account or the fee to access trading platforms.
Mutual fund transaction fee: Some brokers charge to buy/sell mutual funds.
Expense ratio: This is the annual fee all mutual funds, index funds, and exchange-traded funds (ETFs) charge.
Stock trading fee: Brokers can charge these fees when you buy or sell stocks.
Sales load: This is the commission paid on some mutual funds paid by the salesperson who sells the fund.
Management advisory fee: This is paid by investors who use financial advisors or robo-advisers to assist with investing.
You should always familiarize yourself with the different kinds of fees for your investment accounts.
What To Do About Fees?
If you are investing in a company-sponsored plan, such as a 401(k), you may have limited options in the funds you can select. Sometimes, it's easier to simply opt for the funds with the lowest expense ratios.
If you're going the route of choosing your own funds, the investment fees should be one of the first things you consider upon your selection. How much, after all, is it going to cost you to purchase into this investment? What kind of annual fees are you going to be looking at?
You don't necessarily be a stock market genius or financial guru to make savvy decisions. If you want to play it safe, many experts recommend choosing index funds because they tend to have the least fees possible. With that said, you won't garner as much of a reward as you potentially could with a higher expense ratio, but you also won't take on as much risk.
And remember this: past performance is never indicative of future returns. While everyone can make educated guesses based on what's happened in the past, nobody can make accurate predictions about what will happen next.
Show Me The Fees!
Nobody can be as invested in your financial future as you. With that in mind, it's your responsibility to research, take action, and practice sound judgment in managing your money
Before committing to any new financial decisions, make sure you're telling yourself (and the brokerage company) to show me the fees!
For more advice and hacks on rocking your money, be sure to check out our finance archives today!