A large part of investment portfolio losses arise from the fees you pay to invest your money in the first place. Investment costs can eat up tens or hundreds of thousands of dollars over several decades and impair your actual rate of return.
For your garden-variety investor, the majority of fees come in three flavors: mutual fund expenses, advisor fees and brokerage commissions. Of these, mutual funds typically come with the highest expenses, while exchange-traded funds (ETFs) are slightly lower. However, paying just a few percentage points spanned over 25 to 30 years can translate into a hefty sum of money. If you are truly serious about maximizing your rate of return, it’s necessary to know how and where to invest so that you avoid high fees.
Invest in ETFs
Mutual funds typically mean higher commissions; and ultimately, more out-of-pocket cost to you. ETFs provide excellent exposure to financial markets without high costs and investor fees.
Fire the extortionate investor
Get rid of the product pusher and hire an independent, fee-based advisor. Independent advisors have to provide a higher level of disclosure regarding investments and commissions because they are not strong-armed to promote proprietary products. They earn a fixed annual fee based on assets, not a commission for selling a particular product. This added fiduciary capacity results in annual savings to you.
Consider a discount broker
There is no hard evidence supporting the notion that the more you pay for an advisor, the better the financial information you receive. In fact, the more fees you pay, the more you lose over time when it comes to your ROI (return on investment). Use online comparison tools to find a highly rated discount broker and save thousands in fees.
Don’t stick to stocks
Consider stepping outside of the Wall Street bubble with your investments. Historically, when the market crashes, almost all investors lose money. The same does not hold true with investors who invest in real estate ventures, precious metals or small businesses. These types of investments come with no attached commissions or fees and potential for extraordinary returns – many of which are tax deductible if handled correctly.
The world is your oyster. You have a plethora of options at your fingertips and a wealth of financial investment advice and information available to you online. Over time, you could develop the courage to get your own financial investment license, cutting out the middleman in all of your investment ventures, or learn enough about funds, stocks and ETFs to become a highly successful day trader. The bottom line is that it’s all up to you; and the future of your investments, including maximizing those investments without paying excessive fees, is in your hands.