Monday, January 27, 2014

What We Pay to Invest


Read this if: 

1) You want to know how you get charged for investing. 

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Most people know that in order to invest, we have to pay the company that we’re investing with some kind of fee. How much and how often depends on the kind of investment we’re making, and it’s a good idea to understand what you’re paying. In general, there are two basic kinds of payment methods: expense ratio and transaction fees. 


Expense Ratio 

This ratio is usually expressed as a percent, and can range from 0.2% to 2% (Source: InvestopediaAs far as how/when it’s actually charged, I don’t know. I called Vanguard and tried to get an explanation but the lady just said that it was a very complicated process. 

All you need to know is: lower is better. 

Transaction Fees 

These fees are paid when you buy (sometimes, also when you sell) shares, and range from $4 to $10 (Source: Stock Trading Warrior)If you buy and sell a lot, then the fees can add up, but when you buy and then don’t sell  - you don't have to pay anything else, no matter how much your fund grows. 

Other

There are also “account maintenance fees” (for paperwork and other administrative stuff) or “inactivity fees,” (for not logging into your account) but most companies I've looked at didn't charge these, or gave you a way to avoid paying them. 

Bottom Line

Always know what fees you’re paying! They really do start to add up here and there, so you want to minimize the fees when you can. 

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As always, contact me with questions or suggestions! 

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Photo Credit: Joan Zhang :D 

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