It’s an indisputable fact in investing: If you can keep down your costs, you’ll have more in your pocket in the long run. Lower costs generally mean better returns.
There are lots of ways investors pay for the “privilege” of buying and holding investments. And although there is no way to eliminate all investing costs, investors can pay less if they pay attention.
Here are some of the costs of investing you can control:
Brokerage commissions – Long ago, if you wanted to buy or sell a stock, you had to pay a fairly large fee. Deregulation of the brokerage industry in 1975, and the advent of online trading in 1996, pushed brokerage commissions so low that they’re almost negligible. Before deregulation, it might have cost an investor hundreds of dollars to buy 500 shares of stock. Today, placing an online trade can cost less than $10, regardless of the number of shares.
“Loads” – Mutual fund shares sold by brokers carry commissions, called “loads,” sometimes as high as 5% of the purchase amount. No-load funds are purchased commission-free, at net asset value.
Spreads – Stock prices are quoted as bid (the price at which you can sell your shares) and ask (the price at which you can buy shares). The difference between these prices is called the spread. For securities (including ETFs) with high trading volume, the “spread” can be as little as a penny a share. Securities that don’t trade a lot will have larger spreads. When you buy or sell a stock, you incur a cost that is equal to the spread, in addition to the commission.
Carrying costs – When you hold a mutual fund or variable annuity subaccount, you continuously pay internal expenses that you don’t see. They are paid from the net assets of the investment and directly reduce their performance. These include:
It is the practice of Mentor Capital Management Inc. to keep client costs of investing low. We do this through the use of discount brokerage accounts, low-cost exchange traded funds, no-load mutual funds and, where necessary, variable annuities with low or no insurance expenses.