5 Ways to Lower Your Investing Costs

April 18, 2013

investing feesNot too long ago, investing was seen as something expensive . . . something that only the rich could do. Now, though, that’s changed. Investing is something almost anyone can do.

However, investing can still get expensive. If you pay relatively high investing costs, usually due to fees, commissions, expense ratios, and taxes, you could see lower overall returns.

If you want to make the most of your investing dollar, here are some ways to lower your investing costs:

1. Know what you’re paying.

The first step is know what you’re paying in terms of investment costs and fees. If you are concerned about the fees you are paying on assets in your 401(k), you can use tools like Personal Capital to analyze your fees and recommend other options for your portfolio.

New disclosures on your 401(k) statement should tell you exactly what you are paying. It’s also a good idea to get some help looking over the tax implications of your investing strategy, to see where you could save. Know the fees you are paying at your brokerage, and be ready make changes as necessary.

2. Comparison shop.

Now that you know what you are paying in fees, you can comparison shop. If you are paying $9.95 for a stock trade, you should probably know that there are brokers that charge much less, some as little is $4.95. Take the time to look for brokers and investments that come with lower costs. From brokers that will let you reinvest dividends without paying transaction fees, to no-load mutual funds, look for the best deals. When you find a better price, replace your old, more expensive investment, with a new, less expensive asset.

3. Consider indexing.

If you buy actively managed funds, you can consider index funds. Index funds usually come without sales load fees, and often have much lower expense ratios. If you really want to see low expense ratios, you can consider an index ETF. There are ETFs with expense ratios as low as 0.04%. That’s an amazing way to save money on fees, especially over time, as your portfolio grows.

While indexing isn’t for everyone, and you should review your goals before making changes to your investment strategy, using index funds and/or ETFs can be a great way to lower your investing costs.

4. Look for no-cost options.

For investors who are interested in funds, it’s possible to avoid paying commission/transaction costs. Many brokers have a selection of funds that are no-cost, meaning that you won’t pay a transaction fee when you buy shares. You still have expense ratios, so pay attention to that information, but you won’t have to worry about transaction costs. Many brokers also offer commission-free ETFs, so you can take advantage of the low expense ratios.

Consider your options at different brokers, and pay attention to minimums and other account requirements. Also, realize that your selection of commission-free funds might be a little limited.

5. Move your money to a tax-advantaged account.

If you are concerned about how much you have been paying in taxes, you can move your money to a tax-advantaged account. Traditional accounts, like 401(k)s and IRAs, grow tax-deferred, meaning you get a tax deduction for your contributions now, and you aren’t taxed on your earnings until later. This allows your money to stay in your account and grow more efficiently, since you aren’t taxed immediately.

It can also make sense to use an account where your money grows tax-free. Roth IRAs and Roth 401(k)s require that you make contributions after you pay your taxes. However, the money in these accounts grows tax-free; you are never taxed on your earnings. Many investors like to hold dividend stocks and Treasury securities in Roth accounts because the interest/payouts from these investments are never taxed. This can be a way to lower your investing costs over time.

There will always be costs associated with investing. However, with the right strategies you can lower those costs and keep more of your money.

What are some other ways to lower your investing costs? Leave a comment!


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Miranda writes about personal finance almost every day. An experienced freelance writer, she's covered your money online and in print from every angle and is always looking for new ones.

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