While advancements over the past decade have made it cheaper than ever to invest money in the markets, there are still fees to contend with. And if you don't know how much you're paying in fees on your investments, you're not alone.
In fact, nearly 73% of investors didn't know how much money they paid in investing-related fees in 2019, according to a MagnifyMoney survey of more than 1,000 Americans with an investment account. And 1 in 4 investors said they don't know if they pay any investing fees at all.
Companies have slashed some fees in recent years — like eliminating commissions to trade and lowering expense ratios, which are the costs associated with running a mutual fund or exchange-traded fund (ETF) — but you're still likely to pay something in order to invest in the markets. That's why it's helpful to know what fees you're on the hook for, to get a sense of whether they're comparatively high or low.
"It wasn't that surprising that so many investors didn't know the exact fees they were paying," says Sarah Berger, an investing and savings specialist at MagnifyMoney. Still, the fact that 64% of respondents said they didn't know where to look to see what those fees are is problematic, she says: "It's not always supertransparent; that's annoying." And at least one fee you could be paying without realizing it, she says, is "easily avoidable."
Here are some tips for tracking down how much you're paying in some of the most common investment fees, along with what average amounts are:
Signing up for a brokerage account is free and some companies even offer bonuses to new investors, but you can be charged a variety of different fees once you're an investor.
Types of fees: Because you're navigating investing on your own with one of these accounts, the fees will vary depending on your activity. Commonly charged fees can include brokerage fees, trade commissions, mutual fund transaction fees, and expense ratios.
In late 2019 and early 2020, many brokerage companies eliminated the commissions they were charging investors to buy or sell many types of investments, like stocks, exchange-traded funds (ETFs), and mutual funds. If you are still being charged this fee, you may want to shop around, since this is "an easily avoidable fee," Berger says.
Where to find this information: You may have to go hunting for this information on the brokerage company's website or call the brokerage, because the answer may not be in plain sight. You should be able to identify what fees you were charged on recent account statements. For specific types of investments that carry fees, like mutual funds or ETFs, you'll find this information in the fund prospectus.
Average fees: The amount you're paying in fees will vary depending on your level of trade activity and where you have an account. And there's a broad range of possible charges to be on the lookout for, including expensive ones like annual or inactivity fees that could range from $50 to $200 a year, or even minor ones like $1 to $2 to receive paper statements.
Of most relevance to many long-term investors are expense ratios, or an annual fee charged for index funds (either mutual funds or ETFs) and expressed as a percentage of your investment. The average for equity mutual funds was 0.55% in 2018 and 0.49% for equity ETFs, according to the Investment Company Institute.
Robo-advisors, or automated investment services, offer several key benefits: You don't need a lot of money to get started, and fees are low-cost by nature because computer algorithms or software build and manage your portfolio. These services are also an easy way to begin investing on your own and saving for retirement with an IRA.
Types of fees: Robo-advisors typically charge an advisory fee that's either a flat rate or a percentage of your account value. According to an analysis of 14 different robo-advisors conducted by ValuePenguin, a majority don't charge any additional fees — but you should still check to see if you're being charged for certain kinds of transactions, account maintenance, or additional services.
Where to find this information: This information is provided upfront when you sign up for an account, and you'll be able to see the fees you're paying on account statements.
Average fees: For investors with account balances of $5,000 or less, the average advisory fee is 0.25% of your balance, according to ValuePenguin. That works out to $12.50 a year.
Video by David Fang
If you have a workplace retirement plan, you're likely paying fees on it. Nearly all, or 95%, of investors are paying fees associated with their 401(k), according to a 2019 analysis by TD Ameritrade and online fee analysis tool FeeX.
Types of fees: The most common types of costs you'll encounter with your 401(k) are administrative fees and expense ratios for your investments. Unfortunately, these fees are largely out of your control and are dictated by how your company negotiated for its retirement plan and the options that have been selected for you.
Where to find this information: Your company's human resources department can provide information about the fees associated with your 401(k). You'll also be able to review investment fees when setting up your account.
Average fees: The average all-in cost of 401(k)-related fees is 0.45% of the total invested assets, according to an analysis of fee data from people who used the 401(k) Fee Analyzer tool. TD Ameritrade crunched the numbers in July and provided the data exclusively to CNBC Make It. That rate works out to $225 a year for $50,000 invested.
Video by Ian Wolsten
The reason fees matter so much when investing is that they cut into your overall return. All other things equal, an investor paying annual fees of 1.3% will reach retirement with about $100,000 less than one paying fees of just 0.25%, according to the Center for American Progress.
Being an informed investor includes understanding what fees you're being charged, and why, so you're not surprised.
Nearly two-thirds of investors have felt misled by a company's fees, and a similar amount said that fees have a high impact on their investing decisions, according to the MagnifyMoney survey.
Still, make sure that you don't get too hung up on what you're paying, Berger says: "Fees are important to take into consideration but they shouldn't be holding you back from investing."
Instead, focus on investing in those assets that typically charge lower fees like passively managed index funds and ETFs, reevaluate your investments to see if there are lower-cost alternatives, and shop around for another company, if necessary. "There are a lot of unavoidable fees, but there are ways to cut back and save," Berger says.
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