Investing is all about coming up with the right strategy to consistently grow wealth and unlock new opportunities. It’s often a little confusing for beginners when they discover that there are also various fees and expenses that they need to consider too. Getting the most out of your financial portfolio means not only learning which asset classes are right for you. You also need to think about how to manage the balance between risk and reward and discover what you can do to keep your monthly expenses as low as possible. Since there are a lot of different kinds of fees to consider when you’re first getting started, let’s take a look at how you can reduce costs.
Know the Most Common Costs
First, make sure you know what kind of expenses you’re going to be exposing yourself to. For instance, if you’re paying for tools for day trading, like an extra-fast computer and a specialist brokerage account, you’re going to be spending a lot more than you would be on a standard passive investing strategy. The kind of money you’ll need to spend will depend heavily on your strategy, and the kind of professionals that you’re going to be working with. Some of the more common costs include:
- Account maintenance: The price of having an account with an online broker. To avoid this, make sure that you know the minimum amount of capital you need in your account.
- Commissions: This is a flat amount that you pay per trade, or a flat amount plus a percentage. Keep the bills low by looking for someone who doesn’t charge that extra percentage.
- Management or advisor fees: If you need help from a professional, you’ll need to pay for their time. Sometimes, this is definitely worth the extra cost. However, you should constantly work on improving your knowledge and skills so you can manage your own accounts instead.
Keeping the Costs Low
On top of some of the common bills we mentioned above, there are other things to think about depending on the kind of trading you’re going to do. For instance, mutual fund loads are a common concern for people who are investing in mutual funds, as are 12b-1 fees which happen on a yearly basis, depending on how much money you make. Doing your research in advance is the best way to make sure that you’re not over-spending on anything. The good news is that the hefty amount of competition in the brokerage landscape makes it easier for you to find exactly what you need.
As more companies try to attract customers their way, you’ll find that you might be able to get a better deal just by playing the market and comparing your options for a little longer. What’s more, remember that the more you can take the DIY approach and make your own decisions, the easier it will be to avoid over-spending. When you don’t need to rely on advisors and professionals to make your decisions for you, you can avoid a lot of extra costs. However, you will need to think about the extra impact this learning process has on your time.