Paying fees on your investments is nothing new. No one is immune from it – even high-net-worth individuals will pay fees on their investments (albeit at a sometimes smaller rate than most). However, investors with fewer assets who are more likely to invest in mutual funds (rather than work with a stock broker, for example) often pay high management fees on their investments.
Doing the Math
This math alone should give investors pause to look at the management fees for each of their investments and see if alternate investments can be acquired at a reduced cost.
According to a Wall Street Journal article, investors can choose a more “bare bones” approach, with financial advisors doing less “handholding” and only providing the basics for their clients. These types of plans can include household budgets, projections of retirement needs, and a model portfolio of stocks and bonds. The money management side of it is either done by the investor themselves or through other intermediaries at a reduced price.
Also, sales loads or front-ended loads are often added to the purchase of a mutual fund, acting as a one-time commission paid directly to the broker who sold you the investments. These can also be quite high (sometimes beyond 5.0% or higher according to RBC Global Asset Management) and will make a large dent in your initial investment.
The Micro Costs of Day Trading
For example, international funds or other funds that don’t invest in all blue-chip companies might charge a larger expense ratio than a fund investing in known companies. Also, an index fund, which simply attempts to mirror the market, will be cheaper than a more actively managed fund in which stocks are cherry-picked based on the chosen strategy.
Knowing the Facts
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