Not so long ago, in a city not so far away… I spent a fair amount of time picking stocks and trying to beat the market. I will be honest, I was pretty good at it. However, the time and effort it took did not always justify the effort. Over time, I have moved more toward investing in ETFs and mutual funds so I don’t have to worry as much about my money. With that change, though, came new costs and fees that I have to manage.
I Really Don’t Like Fees
I have said it a million times, I hate fees. They suck. Why should I have to pay money to access or use my money? I shouldn’t. However, investment management fees do not bother me as much because I am paying for a valuable service.
In case you are not familiar these are the fees you come across in fund investments and what I think of them. The SEC also has a detailed mutual fund fees page explaining everything in a bit more detail.
Load Fees – Stupid
I never, ever pay a load fee. Load fees are paid when you buy or sell some mutual funds. Through my investment account, I am able to trade many mutual funds free. Because I am a good customer, I also have a fee waiver for a specific family of funds that I prefer.
12b-1 Fees – Stupid
12b-1 fees are marketing fees. This fee, named for the SEC rule that allows its existence, lets funds charge you to do help market their funds. If they can’t cover it from their other fees, they need to do a better job managing your money.
Management Fees – Acceptable within Limits
This is the fee that you pay to investment managers to monitor, buy, and sell fund assets. With this fee, you are paying the managers to do the hard work for you. I work hard to find only high quality funds with low management fees. Keep your eyes on these fees to ensure you are not losing a large portion of your investment.
Account Fees – Stupid
Some investment companies charge a fee just to keep your account open. If you have a 401(k) through your company, you are probably stuck with this whether you like it or not. If you are paying an account fee anywhere else, I suggest you take your business elsewhere.
How I Monitor My Fees
I do my research before I buy any fund to ensure the expenses are low. Your brokerage and sites like Morningstar are your best tools for that.
For my portfolio of funds and investments that I already own, I use Personal Capital to monitor and assess my fees. I recently decided to make some major changes to my portfolio based on a report from Personal Capital.
Using the investment checkup feature, I found that I am paying nearly $200 per year in fund fees, or nearly $10,000 over 20 years including capital gains. I can’t control that part in my 401(k), but I can in my self-directed Roth IRA and Rollover IRA accounts.
Right off the bat, I was able to see which funds had the highest fees as a percentage and where I was paying the most fees in dollar terms. I decided to go after the higher percentage fees first, and already sold one fund, which had been otherwise performing relatively well, to replace it with a similar type small-cap growth fund that has a full 1% lower annual fee.
Take Action on Your Own Investments
As I mentioned, 401(k) accounts have notoriously high fees, but those are often offset by matching contributions from your employer. In your self-directed portion of your portfolio, take some time and find lower fee options to any mutual fund or ETF investment.
I suggest starting with Personal Capital for free and taking a look at the investment analysis tools. You might be able to save thousands of dollars.
Image by Alex E. Proimos / flickr