Control Your Investing Costs
You can't always control the returns on your investments but you can control your investing costs. Because investments costs reduce your total returns, it's important to try to keep costs as low as possible, particularly if your returns are not double or triple digit.
Even low fees and commissions add up so don't ignore them. And don't get into the trap of thinking your returns will be so high as to offset the fees. For example, if you buy a mutual fund with a 4% sales charge, the fund will have to go up 10% for you to be up 6% in the first year of ownership.
Here are six ways to reduce your costs:
- Ask your full-service broker to discount commissions when you buy and sell stocks. Even a small reduction will add to your total return.
- If you want to use a discount broker, check fees and commissions. Select the lowest cost broker.
- Avoid high-fee mutual funds. Buy mutual funds that have low or no sales charges and very low annual fees. Seemingly small fees add up over 20 or 30 years and will substantially reduce your total returns.
- Avoid excessive trading. Frequent buying and selling runs ups your transaction costs and may increase your tax liabilities.
- Cancel those expensive newsletters. Many of them simply hype stocks and then never tell you when to sell.
- Don't attend expensive investment seminars. The only people making money for sure are the people giving the seminar.