How To Lower Your Investing Costs

Investing can be a powerful tool for building wealth over the long term. However, the costs associated with investing can eat into your returns, reducing the overall efficiency of your portfolio. These costs can include fees for buying and selling investments, account maintenance fees, and other expenses. As a result, it's important to focus on minimizing investing costs whenever possible. In this article, we'll look at a few strategies for keeping investing costs low and maximizing your returns.

Choose low-cost investment options: One of the most effective ways to keep investing costs low is to choose investment options with low fees. This can include index funds, exchange-traded funds (ETFs), and other passively managed investment vehicles. These options typically have much lower expense ratios than actively managed mutual funds, which means you'll pay less in fees for the same level of diversification and exposure.

Use a discount broker: Another way to reduce investing costs is to use a discount broker for your trades. These brokers typically offer lower commissions than traditional full-service brokers, making it more affordable to buy and sell investments. Just be sure to compare the fees and services offered by different discount brokers to find the one that best meets your needs.

Consider an automated advisor: If you're not comfortable managing your own investments or don't have the time to do so, consider using an automated advisor. These firms use algorithms to create and manage portfolios for you, and often charge lower fees than traditional financial advisors.

Limit trading activity: Trading frequently can be costly, as you'll pay commissions each time you buy or sell an investment. To keep investing costs low, it's generally best to limit your trading activity and focus on building a long-term portfolio. This can help you avoid the costs associated with frequent buying and selling, as well as the potential for poor investment decisions driven by emotion or short-term market movements.

Consider tax-advantaged accounts: If you're saving for retirement or other long-term goals, it can be beneficial to use tax-advantaged accounts like 401(k)s or IRAs. These accounts allow you to invest pre-tax dollars, which can reduce your current tax burden and increase the overall efficiency of your portfolio. In addition, many tax-advantaged accounts offer a range of investment options with low fees, making it easier to keep investing costs low.

Avoid unnecessary fees: Many investment accounts charge fees for things like account maintenance, wire transfers, and other services. Be sure to read the fine print and understand what fees you may be charged and consider switching to a different account or provider if you feel you're paying too much.

Shop around: Don't be afraid to shop around and compare the fees and features of different investment products and providers. This can help you find the best options that meet your needs while minimizing your costs.

Think about a DRIP:  If they make sense for your situation, dividend reinvestment plans (DRIPs) could pay off for you in the long run.  Investment fees associated with your account are typically paid by the company you are invested in and not by you.

Be Direct:  You can go straight to the source.  The United States Treasury will sell you savings bonds, treasury bills, notes, and bonds with no transaction fees added on. [1]

It's natural to want to invest in the best-performing assets, but it's important to remember that past performance is no guarantee of future results. Chasing returns can lead to costly mistakes, as you may end up buying high and selling low. Instead, focus on building a diversified portfolio that aligns with your long-term goals and risk tolerance.

By following these strategies, you can help keep investing costs low and maximize your returns over the long term. While it may not be possible to eliminate all investing costs, focusing on minimizing expenses can go a long way towards maximizing the efficiency of your portfolio.  It's important to remember that investing always carries some level of risk, and that the best approach for you will depend on your individual financial goals and risk tolerance. It may be helpful to consult with a financial advisor or professional to determine the best investment strategy for you.

Citations:

[1] United States Department of the Treasury.  Treasury Direct Home.  Home — TreasuryDirect