Save 50% on Investing Expenses

Here's part five of our coverage of Smart Money's piece on how to save 50% on everything. In this post they give ideas on how to save 50% on investing expenses. They start with why it's so important that you save money while investing:

Fussing over investment fees is a bore, but if you want to get rich, it's a must. If two guys invested $100,000 in identical portfolios at 7% and waited 30 years, the one who spent 1% of his assets on advice and fees each year would come out $148,000 richer than the guy who spent 2%.

How true! How true! It's the same line of thinking I shared in Expenses, Taxes and Size Matter in Choosing Bond Funds (And Stocks too!) and Ditching Expensive Funds Can Save You Serious Dough.

Now here's a list of their money saving tips that I like:

• The first step: Consolidate your assets. At Fidelity, online trade commissions drop from $20 to $11 once you bring them $50k in assets. Vanguard drops fund fees as much as 50% for clients who invest $100,000 in a single fund.

• Russel Kinnel, director of fund research at Morningstar, advises against paying more than 15% of your expected return in fees. While you might expect to pay the highest fees for the best-performing funds, studies prove the opposite — there's an inverse correlation between fund performance and fees.

• If all you want is cheap trades, check out TradeKing.com. It offers $5 trades, zero account fees and good service.

I'd like to comment on these three:

1. I can vouch for consolidating your assets with one company. I get extra privileges at Vanguard as a result of doing so (I'm not at the level where it's saving me any money yet).

2. I think 15% is too high (that means you'd be willing to pay 1.5% if you got a 10% return). Yikes! See my thoughts below for a much, much better idea.

3. I've never heard of TradeKing and as such, I'm not anxious to give them any of my money. Anyone else had experience with them?

I have two words for those of you who want to save big money and earn great returns on your investments: index funds. In particular, I recommend Vanguard index funds. They're good investments, have low expenses, and the company takes great care of its customers.

For those of you who want to buy stocks, check out The Best E-Broker for You to pick out a good broker with the service and fees right for you.

Click here to read part 6 of this series.

Click here to read part 1 of this series.

Comments

[John Jackson]

Nice article good points.