When it comes to understanding fees associated with investing, do not be afraid to ask your financial advisor questions. If they’re recommending an investment, they should be able to explain how it works, how much it will cost, and how that cost will impact your long-term financial plan. That’s what we do here at Heritage Financial Strategies.
Common Fees Associated with Investing
Not all investments are the same and not all financial plans are the same. A client who is single and wanting to retire in 30 years may have a different investment portfolio than a client who is seeking to retire in 10 years. Understanding the costs associated with investing is important for each of them. Here are the most common fees:
- Brokerage account fees: Annual fees to maintain the account, access to research for help with trading strategy, and access to trading platforms.
- Commission fees: Standard commission may be 1-2% of assets. If a client wanted to purchase 100 shares at $50 per share and the fee was 2%, the cost would be $5,100 (50 x 100 = 5000, 5,000 x .02 = 100). Fees vary and this is an example for illustrative purposes.
- Mutual fund transaction fees: Sales fees charged by a broker to buy/sell mutual funds.
- Front-load mutual funds: Investor is charged a percentage to enter a fund. If a client wanted to buy $5000 at a 5% front-end load fund, they would pay $5,250. Fees vary and this is an example for illustrative purposes.
- Back-end load mutual funds: Investor is charged when they exit the fund. That means if they wanted to sell $5,000 of a 2% back-end load, they would pay $100, and receive $4,900 to exit to the fund.
- 401k fees: Administrative fees charged to maintain the plan. If it is an employer-sponsored plan, all or some of the fees are passed on to employees. When the employee leaves the company, they are still charged the fees. If you’re wondering what to do, here’s my article on 5 Things to do When You Leave Your Job.
While investment fees are part of the cost, it’s important to understand exactly what you’re paying and why.
- Just because your best friend gives you a recommendation, doesn’t mean you invest in it. Ask yourself why you’re making the investment.
- What are the payout terms? An investor may need to hold a position for a certain period of time before they can sell. This is a problem for those, especially retirees, who may need to access funds sooner than the plan allows.
- What is the commission paid? This can impact the amount an investor receives when they sell their position.
More on this in my article Buyer Beware: Questions to Ask before Buying a Financial Product.
When you become a client at Heritage Financial Strategies, it is after a series of meetings, review of your current financial status, and a risk assessment. Before investing, we will explain investment fees and answer your questions.
Visit How We Get Paid to learn more about our long-term financial planning services for those seeking a comprehensive approach to investing.
Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money. Amounts in mutual funds and exchange traded funds are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost.
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