As an investor it is likely that your goals are to protect the capital you already have and to receive a healthy rate of return on your investment over the long run. As is the case with pretty much everything else in our world, investing can be quite expensive if you allow it to be, which can severely cut back on your profits. It is important to understand some of the best ways to lower the costs of investing your money.
5 Ways to Lower Your Costs of Investing:
- Avoid annual fees at all costs - Some brokers charge annual fees for things such as inactivity or too low of a balance in your investment portfolio. This can be a real kick in the pants when the stock market is in bear market mode as you may be assessed a fee because your portfolio dropped so much that it fell below their minimum threshold. Annual fees, as small as they may be, do significant damage to a portfolio in the long run. Always make sure to compare online brokers.
- Use a top discount broker with cheaper trades - This is the most obvious of the five ways to lower the costs of investing. If you are investing with a broker charging $19.95 per trade versus a broker charging $4.95 a trade you are really being hit hard on the transaction fees front. Utilizing lower transaction fees can make a big difference to your bottom line.
- Trade less frequently - Since a lot of the fees from investing come from transaction fees, an investor can save quite a bit by doing less trading in the stock market. Keep your transactions to a minimum and do your due diligence before making any single trade so you don’t want to undo that move immediately.
- Avoid mutual fund loads - This obviously only applies if you are investing in mutual funds, but I am still absolutely amazed at the number of investors who still own loaded mutual funds. There are thousands of terrific no-load mutual funds on the market for you, so why on earth would you allow yourself to be in a loaded mutual fund that generally takes 5% or more of your money on the front or back end of your investment? Or better yet consider investing in Exchange Traded Funds (ETFs).
- Invest efficiently for tax purposes - Taxes are another way that an investor can be charged a pretty penny for investing their money. Taxes cannot be avoided, but there are ways to lower the amount of taxes you pay while investing. Some tax loss selling of stocks that you no longer fundamentally like and wise use of long-term capital gains versus short-term capital gains will help exponentially.
There is no way around having fees associated with investing, but there are certainly ways to lessen the burden of the costs and fees. A wise investor can save a large amount of money by avoiding the highest of the costs of certain investments.
Aaron K. Smith is a freelance writer with experience working in the mutual fund industry and writing about investing and the stock market.
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