There was a recent article published on NerdWallet that said something pretty shocking. Based on the site’s analyzing of a range of scenarios, they found one that showed paying just 1% in fees could cost a Millennials more than $590,000 in sacrificed returns over 40 years.
That’s shocking for most of us and shows the importance of making sure you’re not paying too much in fees as an investor. So how do you avoid them? A lot of avoiding fees might be based on how you use the newest investment technology, and there are some other strategies you can follow as well.
The following are some tips that are based primarily on the tech you use for investing and other factors as well, that can help you reduce the amount you pay in fees on your investments and trades.
Know the Fees
When you think of investment fees, the first thing that comes to mind might be trading fees and commissions, and these can be incredibly expensive. For example, if you use eTrade as your trading platform, you’re going to be paying $10 in commission fees for most trades you make.
As if this isn’t expensive enough, what a lot of people don’t realize is that they may also be paying investment management fees, mutual fund management fees and maintenance fees.
A lot of the battle comes down to being cognizant of what you’re paying.
Fees Related to Penny Stocks
If you’re someone who follows something like the Tim Sykes challenge team and you’re interested in penny stocks, there are even more fees to be aware of. For example, if you use certain sites to trade anything less than $5 a share, there may be an addition surcharge added on.
Some online brokers may put this cap on anything under $3 or $1. That may be in addition to the regular commission, so if you’re trading a large number of shares, which you are with penny stocks, that can add up quickly.
Make sure you’re aware of trade surcharges as well as potential volume restrictions. Look for brokers that charge flat prices and if you’re going to be trading in high volumes or frequently, you might want to go with something that’s considered a discount broker.
ETFs vs. Mutual Funds
Funds are a popular way to invest, particularly if you want to take a hands-off, diversified approach. If you’re concerned about fees, you might want to opt for ETFs instead of mutual funds. Typically ETFs are less expensive and have a lower expense ratio as compared to mutual funds, and they have most if not all of the same benefits.
You can also look for online brokers that have funds available with no trading fees. A lot of companies are offering ETFs with no trading fees at all, which can be a great value if you want to minimize your costs as much as possible.
Use a Robo-Advisor
Finally, if you love the concept of integrating cutting edge technology into your investment strategy, you should consider robo-advisors. Not only are these options convenient and easy ways to optimize your portfolio based on your objectives and risk profile, but they can also save money on fees.
Many robo-advisors don’t charge management fees for accounts under a certain amount, and if they do charge fees, they tend to be significantly lower than traditional investment fees and expenses.
For any investor, but particularly younger investors who may have less money to invest, minimizing fees should be a key concern. Choosing the right platforms and technology, as well as being aware of fees are some good ways to get better returns through lower fees.