When you invest money in corporate stock, commodities, futures and other venues, the expectation is that you will enjoy reasonable return on your money, perhaps even high returns. However, investment fees can creep in and eat away at the gains. Pay attention, and you can learn how to save money on investing fees.
Investing fees deserve your scrutiny
Ram Subramaniam, investing expert and head of products at online stock brokerage TD Ameritrade of Omaha, Neb., points out that investors are erring on the side of caution. Considering the lower returns of the current market, most do not believe that they can afford to pay unnecessary investment fees.
“Any fee is getting more scrutiny, partly because the market returns aren’t as attractive as they were,” he said. “People are conscious and aware of what they’re paying. What you pay in fees eventually impacts your return.”
The usual high investment fee subjects
Some of the most common and annoying investment fees out there include:
- Maintenance fees
- Mutual fund management fees
- Trading fees/commissions
- Investment management fees
According to Subramaniam, most of these fees fall under the category of paying for investment advice, while others are of the commission variety as tied to the purchase and sale of stocks, bonds and stock options. The worst investment fees of the bunch see to exist simply for “the privilege of keeping your money there,” he said.
These types of investment fees may be paid by the month, year, per trade or as a percentage of account assets or the amount of a transaction. Some investment companies charge less for online trades, as opposed to in-person or over-the-phone transactions. In general, look for financial advisers who work on a fee-only basis. Commissions plus fees can add up to a lot.
Mutual fund fees will hit you, too
Justin Krane of Los Angeles-based Krane Financial Solutions warns that mutual fund companies will fling the fees, too.
“When you’re buying a mutual fund, you have to pay for professional management, and there are commissions to buy or sell. Those could be as little as $8 or as much as 2 percent, or 5 percent for a load fund,” Krane said.
“Load” in this case means the up-front or back-end percentage payment the investor makes to the mutual fund company. This is in addition to any other possible transaction fee or commission. Look for no-transaction-fee mutual funds from brokerages with lower expense ratios. High-ratio companies pass the costs on to the investor.
Four investment fee saving tips
- Research brokerage firms and find out what fees they charge ahead of time. Comparison shop for the best deal for you.
- Compare your investment options to strike the right balance between closely managed funds with higher fees but the chance for greater return and lower risk funds that cost less at inception but may return less.
- Do the fee math to make sure you aren’t being hosed.
- Do a cost-benefits analysis once you’ve familiarized yourself with an investment house’s entire fee schedule. Only once you’ve found the right investment balance – ideally devoid of high fees – should you consider condensing your investment accounts under one banner.