Nowadays, spending your money has a more relevant weight, since we live in a time of economic uncertainty. Even the ones with a stable job think about the future. Many people every day start to face the world of investments in order to have an extra income or a good amount ready for a retirement. The most important think before actually starting to invest it’s the elaboration of an investment plan. It’s necessary to take the proper amount of time to ready, study and acquire a good knowledge related to this field.
Consider the fees
Investing requires money. Of course, you don’t need a specific amount, you can start with any sum you have available. Investments themselves can be pricey sometimes, since there are several factors that beginners might not take in consideration when they start fresh. The impact of fees on returns can be high, affecting directly the opportunity you might have. Transaction costs, annual account fees, investment advisory fees, etc. are some of the expenses addressed to the investors. These will not prevent from doing a good investment, neither from earning the desired amount of money. They are just extra element to be considered when making your plan, either if you have a financial advisor or you do it by yourself.
Transaction Fee
Every time an order is placed a transaction fee needs to be applied. This is a cost that, generally, can’t be avoided. Buying or selling stocks will imply this extra cost. The fee depends also on the amount of money you are going to spend on a single order. So, if you want to invest in many different transactions, bear in mind these fees.
Annual account fees
Mutual funds and brokerage accounts are usually charging the investors with an annual account fee. This can range according to different factors, but consider it as a fixed cost you might have to face every year. The accounts may also have a closing fee. At some point you may need to withdraw all your money and, in this case, you should take in consideration this cost. In most cases, if you have a financial advisor that charges an amount on the assets you can be exempted from this annual cost.
Investment Advisory Fees
Also known as investment management fees, these are charged in percentage of the total portfolio managed. A financial advisor helps you make the right choices and basically manage your investments for you, but at a cost. This fee usually tends to be reduced when the investor has a greater budget. Sometimes, brokerage firms or advisor include also additional services like tax planning or budgeting assistance.
Don’t underestimate the costs
Investment costs matter. Even if they seem to be a tiny amount compared to the sum you allocate. During the years they add up and you won’t just be losing them, but also all the eventual growth that money might have had until a specific moment. A way to reduce the costs and avoid some of the fees is picking stocks yourself. Nevertheless, choosing stocks is not an easy process. Single stocks have higher risks compared to mutual funds or ETFs, that can benefit from diversification. Moreover, among all the assets, these two are the ones with the lowest fees applied. When it comes to investing, costs are one of the driving factors in determining whether you can achieve your goals. Also, they are one of the only elements you may have control over. So, give them the time and attention they deserve.
