Some investing fees are flat. Others are based on percentages. And still others are set around a fixed annual fee.
What do they all have in common? No one likes paying fees—especially when they chip away at your hard-earned savings.
A passively managed portfolio, like the one you can create with Dvdendo, will have lower fees than traditional service providers. That’s because our automated process leverages the efficiency of modern technology to pass along cost savings to you.
Still, there are some situations where you can’t avoid fees like your employer’s 401(k) plan or an actively managed account. If you want to minimize high investment fees, you need to understand how fees and commissions work.
Many people don’t realize the amount they’re paying on fees associated with account management, maintenance, and administration. These fees can range from an opening/cancellation fee to a fee for sending a paper statement via the postal service.
The best thing you can do to keep these fees in check is to ask questions. Lots of them. If you are unsure where to start, simply call up the financial institution where your money is held. You may be surprised at the suggestions you get when you ask, “How can I reduce my fees?” And it may be enlightening to learn about hidden or unexpected fees, like low account balances or inactivity.
Another important person to check in with is your HR representative if your investment account is through work. This person can help you find out about fees associated with your 401(k) plan. For example, you should find out which fees, if any, your employer is paying on your behalf and which ones are deducted from your assets. (A good rule of thumb for retirement accounts is to keep your total costs for fees below 1 percent annually.)
Your employee benefit package may also give you limited access to an investment advisor or other financial guidance. Take advantage of these services, especially if the costs are passed along to you. In essence, it’s money you’ve already spent!
Commissions are flat amounts incurred for every investment trade. Unlike fees, it can be difficult to maneuver or negotiate your way out of paying commissions. But in general the level of personalized service associated with your account can greatly influence the commission amount.
Several online brokers, for example, typically charge between $5 and $10 per trade. That might not seem like much, but when multiplied over hundreds of trades, those commissions can add up very quickly.
One way to streamline commissions is to seek investments that offer free or low-cost rebalancing and reinvesting. Rebalancing takes the protection that diversification offers even further—but it’s not always the easiest thing to do on your own. Tracking drift in each asset class and trading your portfolio on your own can be both time-consuming and expensive. Fortunately, Dvdendo, does all of this for you as a fundamental feature of our service.
Another option is to consider commission-free ETFs (exchange traded funds). ETFs balance minimal risk exposure with maximum liquidity, making them an affordable and attractive option for investors with limited assets.
In may sound simple, but the key to profitable investing is to earn more from your returns than you have pay in fees and commissions to get that return.
Consider, too, that sometimes you have to spend money to make money. A typical charge for a professional financial advisor is around 1%. However, this person can save you much more than that by doing the research and recommendations necessary to avoid high investing fees.
Keep in mind as well that you are investing for the long run. A savings of even 1% in fees, properly invested over the course of your career, could earn you tens to hundreds of thousands of dollars upon retirement!