How do you avoid fees when investing?

To avoid or reduce investment fees, start with commission-free brokers. Most online brokers now charge no fees or commissions for making stock purchase and sale order transactions. Use low-cost index funds with low spending rates. Don't you want to give up that expensive brokerage firm? So, another way to reduce your fees is to control the number of trades you make.

Transaction fees can add up and keeping them under control can save you money. Not to mention that doing so will force you to be a buy-and-hold type investor, which could reward you in the form of higher long-term returns. It has been estimated that high fees over a 25-year investment period can consume hundreds of thousands of dollars of your retirement savings. Investors who like to take charge of their portfolio by choosing their stocks can easily get into trouble with spending fees if they use a brokerage firm that charges a lot per trade.

An easy way to reduce the amount you pay in fees is to switch to a low-cost fund, such as an index fund that tracks a specific index or an ETF. Few people pay much attention to their investment expenses when times are good, but what they don't realize is that these small and annoying fees can diminish their profits. Mutual fund fees, including trailer fees paid to investment advisors, which were previously buried, will now be visible to all. Investment fees are an inevitable part of investing, but they don't have to be so high as to reduce returns.

For investors who want to optimize their portfolio and reduce investment fees, there are a few simple ways to do so. According to Morningstar, investors pay an average of 1.2% in fees on actively managed funds, while electronically traded funds (ETFs) charge 0.44%. I was surprised to be charged an annual fee and, according to the letter, it didn't seem like a one-time fee or something that could be waived if I had a higher account balance or a different type of account. To keep the cost of a mutual fund low, investors should try to avoid any fund that has a burden associated with them.

Regulations require investment fees to be disclosed more prominently, but it's still very confusing for investors who don't have time to review an extensive prospectus to find out. If you like the idea of having a portfolio manager to manage your investments, look for one that doesn't charge you much in fees. It's like that feeling you get in the pit of your stomach when your car is in the garage and the guy with his name embroidered on his greasy shirt tells you how much you owe.