3 Things Sapping Your Returns: Fees, Taxes, and Inflation
Most of us want the best possible returns on our investments. However, even as you look for better returns, you might be overlooking some important items that could be reducing your real returns. As you plan your future, you need to do what you can to offset the effects of fees, taxes, and inflation on your portfolio. You canâ t get rid of these costs entirely, but you can limit their impact.
FeesWhen you make your return on investment calculations, you might not consider the effect of fees.
- Transaction fees: Each time you make a trade, whether you buy or sell, you pay a transaction fee. Frequent trading can lead to high transaction fees over time. Most investors do better if they carefully think through their transactions, and limit the number of transactions taking place.
- Expense ratios: All funds come with expense rations. Whether itÃƒÂ¢ s an actively managed mutual fund, an index fund, or a low-cost ETF, thereÃƒÂ¢ s going to be an expense ratio. Each year, you pay fees based on the value of your shares. The more shares you have, and the higher the expense ratio, the more you pay. Choose funds with lower expense ratios.
- Management fees: If you have someone else managing your money, you will likely pay management fees. This can also include the fees associated with the plan management of your employerÃƒÂ¢ s retirement plan. Whenever possible, look for the best value, choosing to get the best possible management at the best possible price.
- Other fees: Be on the look out for other fees. With mutual funds, these fees might come in the form of a sales load. There are other fees, such as brokerage maintenance fees, that you might be charged as well. Pay attention, and look for ways to avoid as many fees as you can.