As You Build a Portfolio, Keep an Eye on Fees

How far do you go to pinch pennies? Maybe you won’t actually stoop down to pick up a penny on the ground, but you might go online to compare prices of cars or household appliances. After all, most of us don’t want to overpay, especially on higher-cost items.

The same principle holds true for investing. When it comes to your overall return, fees matter.

“Investors should consider the impact of fees on their investments,” said Joe Correnti, senior vice president of brokerage product at Scottrade. “The fees should be known upfront, and they can affect investment returns. On the other hand, it’s difficult to predict the performance of a security.”

Investment Fees You Might See

Financial fees come in all shapes and sizes. Here is a partial list of some common ones:

  • Commissions. Brokerage commissions – like Scottrade’s $7 charge for online trades* – are perhaps the most obvious charge for traders and investors.
  • Management fee.  Mutual funds and exchange-traded funds typically impose a fee to pay for professional management and operating expenses. The fees usually are expressed as an annual percentage, and can directly impact the performance of a fund. For example, an ETF with a .2% management fee could see its overall returns reduced by .2%. 
  • Sales fee or load. Many mutual funds impose a separate sales charge (in addition to the brokerage commission), which is expressed as a percentage. The sales charge (or “load”) can be levied when the funds are initially purchased, which is called a front-end load, or when you sell shares, which is a back-end load.
  • 12(b)-1 fees. Many mutual funds, and some ETFs, also impose 12(b)-1 fees – again expressed as a percentage – which are used to offset marketing costs.
  • Advisory fees. Many professional advisors and advisory firms earn their revenue through fees expressed as a percentage of assets. Those fees impact the overall returns to investors.

Adding Up the Fees

When you invest, you might pay multiple fees. If you have an advisor, you might pay a fee to the advisor, plus pay fees attached to the underlying investments. All of those fees can add up and impact the performance of your investments.

But fees are not inherently a bad thing.

“While it’s important to know what fees you’re paying, it’s also important to understand the reason behind those fees and to be comfortable with those reasons,” Correnti said. “A professional advisor, like those with Scottrade Investment Management’s Guidance Solutions™ Group, can help you asses your investment goals and then create a portfolio designed to align those goals with your risk tolerance.”

Question: Do you pay close attention to fees you pay?

Read next: Mutual funds and ETFs are common investments used by individuals. Learn about the differences and similarities between them.

*Online market and limit stock/ETF trades are $7 for stocks/ETFs priced $1 and above. Additional charges may apply for stocks priced under $1, mutual fund and option transactions. Click here for a full explanation of our fees.

Guidance Solutions from Scottrade Investment Management™ and Advisor Access from Scottrade Investment Management™ are investment advisory services offered by Scottrade Investment Management, Inc., a registered investment advisor. Brokerage products and services are offered through Scottrade, Inc., Member FINRA/SIPC, while advisory services are provided by Scottrade Investment Management, Inc. Scottrade Investment Management, Inc. and Scottrade, Inc. are both wholly owned subsidiaries of Scottrade Financial Services, Inc. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business.

Investors should consider the investment objectives, charges, expense and unique risk profile of an exchange-traded fund (ETF) or mutual fund before investing. A prospectus contains this and other information and should be read carefully before investing. A prospectus is available through www.scottrade.com or through a Scottrade branch office.  

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