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How to Minimize Fees and Commissions for Investing

by Q.ai Team

If there’s one way to boost your investment returns, it’s by first lowering your investment costs. Yup, many beginning investors may not realize this, but investing doesn’t only grow your money; it’ll cost you some money, too. We’re talking about the fees associated with investing.

Understanding the types of fees you could be charged with various types of investment options, however, can help you to minimize the costs of investing. Here’s what you need to know to get started.

What Are the Most Common Investing Fees?

Regardless of how you choose to invest, you’re going to have to face some inevitable investing fees. Here are some of which you should be aware:

  • General Trading Fee: This is the bare minimum you need to trade under a brokerage service
  • Account Maintenance Fee: This is the fee you pay just to have your account managed
  • Commission Fee: This is a percentage a broker may take off the top, often according to the total assets under management or per new contribution
  • Stock Trade Fee: This may be a flat or share-based fee for stocks
  • Broker-Assisted Trade Fee: Some brokers who operate by phone may charge their own fees
  • Mutual Fund Trade Fee: You may have mutual fund trade fees depending on the type of fund you plan to trade
  • Front-End Load Fee: This is the fee you’re charged upon purchase of mutual fund share
  • Back-End Load Fee: Brokers charge back-end load fees when you cash out your fund
  • Base Fee: This is a flat rate per option trade
  • Per-Contract Fee: This is a fee that may have several tiers depending on your option trading
  • Exercise Fee: Some online brokers charge a fee for exercising, rather than closing, your option(s)
  • Assignment Fee: If you have an option automatically bought or sold based on certain conditions, you may have an assignment fee
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What Are My Investing Options?

While investing was once reserved for the Wall Street elite, any average Joe and Jane can get started rather simply these days. That’s thanks to a number of options you have to invest your money, like these three alternatives:

1. Robo-Advisors: Robo-advisors use algorithms and AI to determine the best portfolios for you — taking into account your investor type, tolerance for risk, investment time horizon and other key factors. Many robo-advisors will point investors toward ETFs, which are lower-cost and automatically diversified due to their makeup. Using a robo-advisor is ideal for investors of any level who want to “set it and forget it.”

Where the costs come into play with robo-advisors are the startup fees and expense ratios. But many robo-advisors offer expense ratios as low as .25 percent or less, depending on how much you invest (though many also have investment minimums, which can be upwards of $10,000).

2. Full-Service Brokers: Full-service brokers are the most expensive investing option, so they typically only deal with high-net worth clients. But despite their expensive deposit minimums (which can be upwards of $25,000 or even higher), clients get what they pay for. Full-service brokers offer a full range of services and financial advice, from building retirement accounts and estate planning to trading in stocks, ETFs, mutual funds and more exotic trading options.

Full-service brokers typically charge commission on transactions, plus a percent of the value of your assets. This is usually about one to two percent, which can significantly add up over time.

3. Discount Brokers: Discount brokers are a popular option among those who can’t afford the exorbitantly high fees of a full-service brokerage. They operate online and often offer commission-free stock trades but make their money via fees for more advanced financial transactions (these range anywhere from about $2 to $10 per trade).

Some discount brokers also have minimum deposit restrictions, which range from $100 to $1,000 or more. Some may lower certain costs like trading and account management fees, however, if your balance rises above a specified threshold — which provides you incentive to invest more.

Because you have to buy and sell on your own without personalized advice from financial experts, discount brokers tend to be more cost-effective upfront. That said, your portfolio may not perform as well as it could with the help of a professional, which might cost you money in the long run.

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Unfortunately, no matter how you choose to invest, you’re going to have fees to pay. But the good news is that you can take actions to reduce those fees.

  1. Shop around. Don’t just go with the first robo-advisor or broker that you find. Shop around to get an idea of different financial professionals’ fees and go with one that makes the most sense for you. Maybe you choose to go with a free or low-cost robo-advisor or a discount broker over a full-service broker, for example. You can use tools like free online fee calculators to help you do the math and make educated decisions.
  2. Get informed. Read the fine print that your robo-advisor shares or ask your broker specific questions about the fees they’ll charge you. Likewise, you’ll want to review your account statements to make sure that you’re being charged correctly. You can also ask your financial professional to break the fees down for you if any of the charges are unclear.
  3. Negotiate. In some cases, your fees may be negotiable. It’s worth talking to your financial professional about reducing them if and where possible.
  4. Invest wisely. Choose to invest with brokers that don’t charge commissions for stocks, for example. You may also seek out no-loads mutual funds that don’t charge you when you buy or sell them. In other words: Put your money in places that charge little to no fees for doing so. Your financial advisor will be able to help you choose low-cost investments.

The fees associated with investing may seem minimal, but they can add up over time and eat away at your returns. Be sure that you’re keeping abreast of these extra charges and making investment decisions that are right for you.