8.08.2012

Frugal investing .... saving on costs

5 Ways You're Paying Too Much To Invest

Excerpt:
According to Consumer Reports, a household with two median income earners will likely pay $155,000 in fees to service their 401(k). That's roughly three years of salary for an average worker and although it's reasonable to expect a person to be paid for their services, nobody wants to overpay. That might be what's happening in your investment accounts. How do you know if you're overpaying for your investments? ...
Fees to watch:

  • Expense Ratio: If you own mutual funds, ETFs or closed-end funds in any of your accounts, you're paying for somebody (or a team of somebodies) to manage that investment vehicle. The job of that product is to make you money, but some cost you more than others. The expense ratio tells you what percentage of your investment is taken to administer the product.
  • Loads: Look for no-load mutual funds
  • Financial Advisor: giving away 1.5% or 2% of your year's gains to your advisor is hard to swallow
  • Trading Costs: If you're a retail or part-time trader, you know that every time you trade a stock, bond, ETF, mutual fund or any other product, you have to pay a fee to buy and a fee to sell. On a $10,000 account, you could lose 1% of your gains in trading costs if you trade 142 times, assuming that a trade costs $7.
  • Taxes: If you hold your investment for less than a year, you'll pay short-term capital gains tax of 35%. If you hold an investment for longer than one year, you'll pay 15%. If you withdraw money from your 401(k) prior to age 59 1/2, you'll pay taxes on the gains plus a 10% penalty
Comments:
  • Coming soon ... 401K fees will be disclosed!
  • If one is past 59 1/2 one can roll 401K funds over to an IRA and have both greater investment choices and potentially lower costs. Not for the faint of heart!
  • I don't think a financial advisor is worth 1.5-2% of my assets !
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