One of the most difficult things about investing is the fact that you usually have to pay fees in order to invest. From transaction fees with brokers to expense ratios on funds, you usually have to spend money in order to make money as an investor.
Fees are one of the things that reduce your real returns. Along with taxes and inflation, fees can cut into your returns. Fees are one of the things that you are most able to control when it comes to investing.
That means that you need to take advantage of ways to reduce your costs when you invest. Here are 3 ways to save money on investing fees:
1. Shop Around
As with all things in life, it’s important to shop around if you want the best deals on anything. The same is true of investing. If you want the best possible prices for your investing dollar, you need to shop around.
There are a number of online brokerages that provide you with competitive rates. You can find brokers that charge transaction fees as low as $4.95 (or less) per trade. This is a great way to avoid high costs. There is no reason to pay $9.99 per trade when you could pay about half as much.
Before you open an investment account, shop around for low fees. You’ll be glad you did.
2. Follow Up With Your Employer
In many cases, it’s possible for you to request a less expensive plan from your employer. If your employer’s plan has high fees, it makes sense to find out if you can switch administrators.
Talk to your company’s human resources department. You might be able to become a retirement plan advocate, and get access to information about the plans available to you and your fellow employees. You can then help choose a new plan with lower costs.
Some studies indicate that workers lose out by about $150,000 over a lifetime due to overpaying on 401(k) fees. You do have options. If you don’t like what your employer offers, see if you can do something about it.
3. Invest in Low-Coast Index Funds and ETFs
Trading stocks and investing in actively managed mutual funds can lead to high costs. If you want to save money, you can do so by choosing to invest in low-cost index funds and ETFs. Some ETFs have expense ratios as low as 0.04 percent. That sure beats a ratio in excess of 1 percent.
There are a number of platforms that focus on these types of investments now. You can invest in Betterment, and only pay a low annual fee. Loyal3 is another platform that gets rid of transaction fees as focuses on low annual rates.
Even if you just invest within your company’s retirement plan, look for low-cost index funds and ETFs. You’ll end up with lower overall costs, saving you money over time.
There is no reason to pay high fees when you invest. You can get more for your money, and build a bigger nest egg when you do what you can to reduce what you pay in fees.
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