Save Money on Your Investments

Save Money on Your Investments
January 7, 2013 by

Not so long ago, in a city not so far away… I spent a fair amount of time picking stocks and trying to beat the market. I will be honest, I was pretty good at it. However, the time and effort it took did not always justify the effort. Over time, I have moved more toward investing in ETFs and mutual funds so I don’t have to worry as much about my money. With that change, though, came new costs and fees that I have to manage.

I Really Don’t Like Fees

I have said it a million times, I hate fees. They suck. Why should I have to pay money to access or use my money? I shouldn’t. However, investment management fees do not bother me as much because I am paying for a valuable service.

In case you are not familiar these are the fees you come across in fund investments and what I think of them. The SEC also has a detailed mutual fund fees page explaining everything in a bit more detail.

Load Fees – Stupid

I never, ever pay a load fee. Load fees are paid when you buy or sell some mutual funds. Through my investment account, I am able to trade many mutual funds free. Because I am a good customer, I also have a fee waiver for a specific family of funds that I prefer.

12b-1 Fees – Stupid

12b-1 fees are marketing fees. This fee, named for the SEC rule that allows its existence, lets funds charge you to do help market their funds. If they can’t cover it from their other fees, they need to do a better job managing your money.

Management Fees – Acceptable within Limits

This is the fee that you pay to investment managers to monitor, buy, and sell fund assets. With this fee, you are paying the managers to do the hard work for you. I work hard to find only high quality funds with low management fees. Keep your eyes on these fees to ensure you are not losing a large portion of your investment.

Account Fees – Stupid

Some investment companies charge a fee just to keep your account open. If you have a 401(k) through your company, you are probably stuck with this whether you like it or not. If you are paying an account fee anywhere else, I suggest you take your business elsewhere.

How I Monitor My Fees

I do my research before I buy any fund to ensure the expenses are low. Your brokerage and sites like Morningstar are your best tools for that.

For my portfolio of funds and investments that I already own, I use Personal Capital to monitor and assess my fees. I recently decided to make some major changes to my portfolio based on a report from Personal Capital.

Using the investment checkup feature, I found that I am paying nearly $200 per year in fund fees, or nearly $10,000 over 20 years including capital gains. I can’t control that part in my 401(k), but I can in my self-directed Roth IRA and Rollover IRA accounts.

Right off the bat, I was able to see which funds had the highest fees as a percentage and where I was paying the most fees in dollar terms. I decided to go after the higher percentage fees first, and already sold one fund, which had been otherwise performing relatively well, to replace it with a similar type small-cap growth fund that has a full 1% lower annual fee.

Take Action on Your Own Investments

As I mentioned, 401(k) accounts have notoriously high fees, but those are often offset by matching contributions from your employer. In your self-directed portion of your portfolio, take some time and find lower fee options to any mutual fund or ETF investment.

I suggest starting with Personal Capital for free and taking a look at the investment analysis tools. You might be able to save thousands of dollars.

Image by Alex E. Proimos / flickr

My Twitter profileMy Facebook profileMy Google+ profile

Eric

President and CEO at Narrow Bridge Media
Eric is the founder and editor of Narrow Bridge Finance. He is a financial analyst with an MBA and undergraduate degree in finance.
Related Posts Plugin for WordPress, Blogger...
Filed Under: Investing Tagged With: , , , , ,
  • http://twitter.com/PFBeat PF Beat

    Great post. I’d guess that the majority of folks don’t even pay any attention to fees, and yet they will have a substantial impact on your bottom line.

    I am considering opening an account with Vanguard to get (back) into the index investing game.

    • http://www.narrowbridge.net Eric

      Vanguard has some of the lowest fees of all investment companies. Be sure to look at other fund types in addition to index funds. They might be a better match for your goals, but they might not. Everyone is different.

  • http://www.moneylifeandmore.com/ Lance@MoneyLife&More

    I use Vanguard which avoids most of these fees. You’re right that most of them are stupid. They probably were harder to get around before the internet though.

    • http://www.narrowbridge.net Eric

      Vanguard is one of the very best investment companies for low fees. Great choice! I have some Vanguard funds in my portfolio.

  • Jane Savers

    I bought my first stocks in 2012. I have decided to buy individual stocks because it sounded like a good, interesting strategy. I am very conservative and I don’t buy anything that I don’t understand. No tech stocks for me. I am not sure how this computer I am using works and I am convinced that Apple is so highly valued right now because many people think it is cool/hip/trendy or whatever the current term is for an item that you select because you want to be seen posessing it.

    • http://www.narrowbridge.net Eric

      It sounds like you have a strategy similar to Warren Buffet. Just make sure you do the homework on the company’s financials, not just the industry.

  • http://www.monsterpiggybank.com/ Glen @ Monster Piggy Bank

    I hate fees too. It seems almost every product has fees attached to it these days. No wonder people are so cranky all the time.

    • http://www.narrowbridge.net Eric

      As long as we can manage our fees, they make less of an impact on our bottom line.

  • http://www.miiockm.com/ Miiockm

    I agree completely, ETF’s are the way to go these days.

    • http://www.narrowbridge.net Eric

      Thanks for the comment! Do you have any favorite ETFs or ETF categories?

  • Duh

    You pay more overtime with no load mutual funds…as the fees are ongoing.

    • http://www.narrowbridge.net Eric

      That is often not the case. Many funds that charge load fees still have high management and marketing fees. The net over time is still not usually worth it.

      • What?

        You may want to double check…

        What are loads?
        Loads are one of the costs associated with mutual funds. All sales
        commissions and expenses are paid from the sales charges collected.
        Usually there is also an ongoing, sometimes paid annually, asset-based
        fee. The three most common ways these are paid are:
        Class A Shares: A front-end load or fee you pay as an investor as
        your dollars are invested into the mutual fund. Class A shares will
        carry a lower asset-based fee than the other two options. While
        sometimes emotionally difficult to pay this fee up front (your $100,000
        may turn into $95,000 on day one), this is usually the least expense
        choice over a long period of time.
        Class B Shares: No-load up front, a higher ongoing asset based fee;
        but with a back-end load, if the investment dollars are removed within
        an agreed upon period of time. This load is typically a declining
        percentage that is reduced annually. For instance, 8 percent the first
        year, 7 percent the second, etc. and is usually structured so that it
        drops to zero after an extended period of time.
        Class C Shares: These shares have a level load, so an investor pays a
        significantly higher asset-based fee monthly, quarterly or annually.

        • http://www.narrowbridge.net Eric

          I am glad you are able to cut and paste from Dave Ramsey. He is a great resource for many people, but you are missing an important assumption.

          If the fund uses load fees to offset the ongoing management fee, then you are correct. However, that is not always the case. Some funds have both a load fee and high management fees.

          I am writing about fees with low fees across the board. I recently purchased shares in VISGX. This fund has no load and a small .24% annual expense ratio.

          • What?

            My comment seems to have been removed. Very professional.

          • http://www.narrowbridge.net Eric

            I did not remove any comment. It must not have come through Disqus correctly. Nothing was marked as spam or deleted. I am sorry about that.

          • http://www.narrowbridge.net Eric

            I did not remove any of your comments. It must not have come through Disqus correctly. Nothing was marked as spam or deleted. I am sorry about that.

          • What?

            Alright. I do not like Dave Ramsey, yet his site had my point already listed. Call it laziness. His advice is far too simplistic and conservative. Here is an example from the well known Vice Fund –> http://www.usamutuals.com/vicefund/docs/Vice%20Fund%20Summary%20Prospectus.pdf — as you can see over the long term class A shares are the better deal. If class C shares were always the better option, no one would buy class A shares. VISGX is a Vanguard Fund. Vanguard is known for it’s conservative approach (not a bad thing), though lower fees make sense. Since the fund’s inception it has returned 6.35%, when you factor in that inflation is about 3% on average, the real rate of return is about 3.35%. You would have been better off putting your money into tax free, triple A rated, fully insured Municipal bonds with a yield of 5-6%. No sales charge. Virtually risk free and similar return. In regards to your comment about index funds, retail investors rarely beat the market picking individual stocks and are better off putting their money into index funds. Your blog is interesting, but I am waiting for you to write something that doesn’t seem like it was rehashed from the Motely Fool or some other mainstream investment site targeting retail investors.

          • http://www.narrowbridge.net Eric

            You make a good point there. I usually write toward less experienced investors, but there are some older posts I have done looking at more in depth issues around specific investment types. I will definitely take that into account and give you (and the rest of the readers) something with a bit more in-depth investment analysis and strategy.

  • http://www.pipstoday.com/ Shawn James

    Thanks Eric to capture our attention regarding investment fees. I did not calculate all fees together. As it was difficult for me. However I am planning to use Personal Capital now.

    • http://www.narrowbridge.net Eric

      It is a great site. I hope you find it useful.

%d bloggers like this: