Death by a Thousand Fees
Finding a good stockbroker, or reliable mutual fund, entails luck and considerable effort. But there is one critical part of the investment process that is easy to control and that will immediately increase investment returns: fees.
Fees can prove to be the difference between a comfortable retirement, or not. The issue is significant in a low-return environment such as has existed in the United States for more than a decade, and which some pundits believe could exist for a decade longer as the nation, and world, struggles to emerge from the credit crisis. If a stock portfolio annually advances 5 percent, and an investor pays 1 percent in fees, they are giving away 20 percent of their return. No one thinks that way—but they should.
It is not realistic to expect financial products will be free of fees or transaction costs. There is a cost in running banks, exchanges, and even in organizing and selling mutual funds, and operating a stockbrokerage office. Stockbrokers deserve to be paid for their time. But it is important to be realistic about fees. Fees can influence decisions that stockbrokers make for clients.
If you are a self-directed investor, and make your own decisions, and do your own research, online discount stockbrokerage firms that charge low fees are irresistible. Vanguard’s low-cost index funds and exchange-traded funds (EFTs) are hard to ignore. But most people inevitably turn to, or are recruited by, stockbrokers who work for firms such as ...