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Excited to start building your nest egg through investing? That’s fantastic! But before you dive in, it’s important to be aware of some crucial fees that are often overlooked. While some fees are unavoidable, understanding them will help you navigate your investments more effectively.
No matter if you’re enrolling in a 401(k) or selecting mutual funds for your IRA, fees are part of the equation whenever you invest. GOBankingRates highlights several fees you may be able to avoid or at least minimize. For example:
IRA Fees: If your IRA is managed through a brokerage account, you might be paying an IRA or Brokerage Fee, as mutual fund advisor Timothy M. Scholten shared with the site. This is the fee you pay a third party to manage your mutual fund investments. He suggests going directly through mutual funds to avoid this fee.
Expense Ratios: Essentially a convenience fee for mutual funds, ETFs, and closed-end funds. These funds are made up of multiple individual investments, and the fund company charges a fee for the service. To reduce or avoid this, GBR recommends choosing index mutual funds or ETFs, which tend to have lower expense ratios.
Trading Costs: These are fees charged by brokers when you buy or sell an investment. Known as commissions, these fees can add up. For example, if you have a Scottrade account and purchase individual stock, you’ll pay a $7 transaction fee. If you engage in frequent trading, avoiding these costs can be difficult. However, GBR suggests reducing trading frequency, working with cost-effective brokers like Fidelity or E*Trade, and seeking brokers offering commission-free ETFs.
We’ve mentioned FeeX before, a tool that helps you quickly see how much fees are draining from your investment accounts. It’s a handy resource for assessing your costs. For a deeper dive into each type of fee, be sure to check out the link below.
Image courtesy of Chase Elliott Clark.
