If you make enough money to afford to invest, you want your investment dollars to provide the largest return possible. Unfortunately, investing fees can eat up a large portion of your earnings. It is important for every investor to be aware of the fees being charged and the amount they pay to hold or sell their investments. A recently launched service called FeeX shows you just how much you are paying in fees for your investment accounts. Minimizing these fees is one of the best ways to maximize your returns without taking on excessive risk.
Trading Fees
If you are an active trader, fees on trades can consume a high percentage of your investment earnings. Fees on trading vary widely between brokerages. For a Scottrade or Vanguard account, trading EFTs results in a $7 fee per occurrence. The cost rises to $9.99 for an E-Trade or TD Ameritrade account and can be as high as $14.95 for trades made through Muriel Seibert. In a recent article by GOBankingRates, it was suggested that active traders minimize these fees by trading less often and choosing accounts with low-cost brokerage firms.
Expense Ratios
Also known as management fees, these fees are basically a convenience charge on mutual funds for being able to invest in a variety of individual investments through the fund. According to calculations from Morningstar, the average expense ratio for open-end mutual funds was 0.71 percent in 2014. Not all mutual funds charge this fee. You can minimize them by choosing investments with low expense ratios or avoid them altogether by focusing on funds that do not charge them.
Brokerage Fees
Brokerage fees are paid to have a third party hold and manage your investments. This investment fee can be avoided by buying your mutual funds directly instead of through a brokerage. This way, your annual fees will only be $10 to $15 per year instead of the $40 to $50 typically charged by a brokerage.
Withdrawal Fees
Withdrawal fees, distribution fees, and early distribution fees are monetary penalties for removing your money from an investment. Before opening an account, you should know whether these fees are part of the account agreement. You should also know what actions trigger the fees. If you prefer liquidity in your investment account, seek account options with low or no withdrawal fees.
Investing fees are quite common, but can easily be minimized or avoided by learning the basics of investing and communicating with a qualified financial advisor. Keeping this money in your investments instead of paying it out in fees will make it easier for you reach your investment goals.