Stock Market Fees, The Cost is Real
Average Fees are Borderline Criminal
Most people look at investment management fees and don’t even think twice about paying 1% or 2%. The truth is, you probably don’t actually know what you are paying. This is intentional on part of many advisors or brokers. In fact, we’ve seen situations where people have been told it was free, only to find out there were a bunch of underlying fees and commission rebates to make it appear “free”. To put things in perspective the average fee for a $100,000 account is around 1.3% and the average investment management fee for a $50,000 account is 1.45%. This strikes as criminal when people can invest with Betterment (our favorite, but among a wide range of others) for 0.25%
Maybe it’s because 1% in a single transaction at the grocery store, or even on a car just doesn’t seem like that much, but when it’s yearly in an investment account it doesn’t just add up, it compounds. Adding up the cost of 1% might make you think that it would cost you 20% of your money over the years, but compounding makes it way worse than that.
What About a Trading Account?
Maybe you don’t use an advisor or are not considering one. At that point, it’s important to consider whether your commissions are becoming a de facto fee. Here’s a quick way to think about that: at $10/trade, the equivalent fee would be 1% on $1,000, 0.50% on $2,000, and 0.25% on $4,000. In other words, if you’re paying $10/trade, you better be buying or selling at least $4,000. Those numbers double if you’re moving into one position from another. The gold standard in stock market pricing is Interactive Brokers, where at $0.015 per share, a $20 stock sale would be equal to a rate of 0.075%. Tha’s close enough to zero to be negligible.
Bottom Line: Even Small Fees Add Up Quickly
Bottom Line: Een Small Fees Add Up Quickly
We realize that thinking about dollars way in the future may not be top of people’s minds when they are looking through their investment statements and probably not even noticing the fees, so we thought we’d put together a few to the things your future self may be missing out on if you’re not careful.