4 Ways to Cut Investment Costs
Investment costs can be charged as a percentage of the assets in your account. These are called asset based fees and are charged by mutual funds, ETFs, and many financial advisers. Then, there are commissions which are charged on a per trade basis. All investments have costs. The key is to minimize them as much as possible so that you are able to save more faster. The following 4 ideas provide a quick and easy way to begin saving on investment costs right away.
1) Become Your Own Money Manager – The average U.S. equity fund charges 1.30% per year in expenses. If your fund is not outperforming it’s relative benchmark, switch to an index fund or one that has a lower expense ratio. For example the Vanguard S & P 500 fund has a .18% annual expense ratio. That could be a savings of over 1% per year or $100 for every $10,000 invested.
2) Don’t Pay Inactivity Fees - If you aren’t an active or day trader, make sure your brokerage firm doesn’t impose an inactivity fee for not trading. This is not as common as it used to be, but making a quick phone call to confirm this is definitely in your best interest.
3) Use a discount broker – This may seem like old advice but there are still a lot of investors who aren’t using discount brokers and are paying excessive commissions. Here is a survey from Smart Money listing the top discount brokers in 2009. Smart Money Discount Broker Survey Look at the cost comparisons.
4) Become Your Own Fund Manager – Sites like FolioFn and Buy and Hold allow you to create your own mutual fund. With one click, you can allocate your dollars equally across all of the holdings in your investment portfolio or customize each security weighting. Most of the time this allows an investor to reduce costs significantly. The following is an investment cost comparison
Now these may seem like small savings or ideas that won’t make a huge amount of difference. However, they certainly will over time. Over 10 years, they can make a huge difference. You need to get involved and take control of your investments; know what is going on, stay alert, make adjustments and reach your goals sooner.
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