Investor Psychology
Slash Your Investing Costs in 3 Easy Steps
From Kiplinger's Personal Finance magazine, November 2009
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The Markets are fickle. But costs are something you can control, and keeping them down is crucial to your success as an investor.
Cut your fund fees. Okay, so you've wisely learned to avoid sales fees, but do you know how much your mutual funds really cost you each year? Morningstar's "Instant X-Ray" feature (click on "Tools" at www.morningstar.com) will break down your funds' fees into hard dollar figures and compare them with the average costs of similar funds. Boot out any funds with above-average expenses along with poorly performing actively managed funds, and replace them with low-cost index funds or exchange-traded funds.
Find a bargain broker. Our favorite online broker, Fidelity, doesn't have rock-bottom commissions, but we like its wide range of research and investment options. For bare-bones service, we favor WellsTrade, which offers 100 free trades per year as long as you maintain a minimum balance of $25,000, and Just2Trade, which charges a flat $2.50 commission for stock and fund trades.
Haggle with your adviser. The best time to negotiate your adviser's fees is when you're still shopping around. Already settled? Ask for a dollar-by-dollar breakdown of the exact fees you're paying, then "ask very respectfully, 'Is there anything we can do to lower that price tag?'" says planner Sheryl Garrett, founder of the Garrett Planning Network. If you pay by the hour, start doing more paperwork and research at home so that you'll spend less time and money with your adviser.
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Reader Comments (1)
Posted by: Matt Smith at 08/13/2010 02:42:04 PM
It is terrible what you are telling people to do with their money. Control costs at the expense of performance is exactly what you're preaching. Buy what indexes, are there any that haven't lost money or just barely kept it static for the last decade. Furthermore an index invests more money in a stock, or bond when the price is higher and less when the price is lower. As far as I can tell that is the exact opposite of a sound investment strategy. Now to be fair there are many poor load funds out there that have not outperformed their respective index, but to say that 100% of the time your better with an index or ETF is irresponsible and unethical. I'm sure this article will sell alot of magazines and get you lots of hits on the web, but as far helping anyone financially your way off the mark. Not all advisors out there are Bernie Madoff and the fact that you only mention the cost of Advisor's and not the benefits and value that having a good one carries is very unbalanced. If you're looking to have a strong financial future. Get an advisor that wants to develop a relationship that goes beyond transactions or account size. One that has your goals and financial well being as their main concern, not commission. The sad fact is that for a consistent investment philosophy, and proven performance that fits your particular situation, not just buying the 500 largest capitalized stocks in the US economy, you may have to pay a little for it. Remember though, cost is only an issue in the absence of value.