Monthly Investing Without Fees: Strategies For Smart, Cost-Effective Trades

Investing is a great way to make your money work for you, but it can be difficult to know where to start. One of the most important things to consider when investing is the fees that come with it. Investment fees can hurt your overall returns, so it's important to know how to keep them to a minimum.

There are a few ways to invest without paying fees. One way is to use a no-fee brokerage firm or trading house. Most brokerages no longer charge for trading stocks, ETFs, or mutual funds, so you can keep your expenses down by investing with one of these firms. Another option is to use a robo-advisor, which uses algorithms to manage portfolios and may come with low or no fees.

If you're looking to invest in mutual funds or ETFs, you can buy them directly from the fund companies, as some are available at no charge. You can also use special investing platforms that offer free trades, such as M1 Finance.

When it comes to trading fees, not all financial institutions will charge you, so be sure to pay close attention to the fee structure of your brokerage. And if you're considering working with a financial advisor, you may want to opt for a robo-advisory firm, which tends to be less costly than human advisors.

By keeping these things in mind, you can invest your money while keeping your expenses low.

Choose a no-fee brokerage firm

When choosing a no-fee brokerage firm, it's important to remember that not all brokerage firms are created equal. Here are some key factors to consider:

Research and Tools

Look for a brokerage firm that offers a wide range of research and analysis tools to help you make informed investment decisions. This includes access to market data, news, and analyst reports. Some firms also offer advanced features such as customisable investment screeners and technical analysis tools. These tools can help you identify potential investment opportunities and manage your portfolio effectively.

Investment Selection

Different brokerage firms offer access to different types of investments. While most firms offer stocks, ETFs, and options, there can be variations in the specific investments available. For example, some firms may offer a wider range of mutual funds or provide access to international markets. Consider your investment goals and strategy when evaluating the investment selection offered by each brokerage firm.

Customer Service and Support

As a beginner investor, having access to reliable customer support can be crucial. Look for a brokerage firm that offers multiple channels of communication, such as phone, email, and live chat. It's also worth considering the availability of customer support, including extended hours or 24/7 support. Additionally, some firms provide access to in-person support or financial advisors, which can be beneficial if you prefer more personalised guidance.

Account Types and Features

Different brokerage firms offer different types of accounts, such as individual, joint, retirement (IRA), and trust accounts. Consider your specific needs and goals when evaluating the account types offered. Also, look for additional features such as the ability to set up automatic investments, dividend reinvestment plans, or access to margin trading.

Fees and Commissions

While no-fee brokerage firms eliminate certain types of fees, there may still be other costs associated with your account. Be sure to carefully review the fee structure of each brokerage firm, as some may charge account maintenance fees, inactivity fees, or other transaction fees. It's important to understand all the potential costs involved before opening an account.

User Experience and Platform Accessibility

The user interface and accessibility of the trading platform can significantly impact your experience as an investor. Look for a brokerage firm that offers a user-friendly platform, preferably with customisation options to tailor the interface to your needs. Additionally, consider the availability of mobile apps, as they can provide convenient access to your account and enable you to invest on the go.

Remember to evaluate each brokerage firm based on your specific needs and investment strategy. What works for one investor may not necessarily be the best choice for another. Conducting thorough research and comparing multiple brokerage firms will help you make an informed decision and choose the no-fee brokerage firm that best aligns with your investment goals.

Use a robo-advisor

Robo-advisors are a relatively new trend in the financial industry and can be a great way to invest your money without paying fees. They are a good option for small investors because they have low fees or no fees at all. Robo-advisors use algorithms to manage your portfolio for you, so you don't have to pay someone to physically manage your account. This automation keeps costs down and means more money in your pocket.

Robo-advisors will create and manage an investment portfolio for you based on your financial goals and risk tolerance. They will ask you a series of questions to understand your investment objectives, such as your goals, liquidity needs, time horizon, and risk tolerance. Based on your responses, they will present you with a core investment portfolio that fits your criteria.

Some robo-advisors offer additional features such as access to human financial advisors, tax-loss harvesting, and high-yield cash accounts. They may also provide educational resources and tools to help you make informed decisions about your investments and financial planning.

When choosing a robo-advisor, it's important to consider factors such as fees, investment options, account types, and the level of customization you need. Some robo-advisors charge a monthly or annual fee, while others charge a percentage of your investment. Make sure to compare the different options and choose one that aligns with your financial goals and needs.

• Betterment: Offers a range of portfolio choices, including smart beta, socially responsible investing (SRI), and crypto portfolios. It also provides low-fee financial advice packages and has a $0 account minimum.
• Wealthfront: Provides customizable automated portfolios, individual stock investing, high-yield cash accounts, and superb digital financial planning tools. It has a $500 account minimum.
• SoFi Automated Investing: Charges no annual advisory fee and offers access to financial advisors at no additional cost. It has a $1 minimum investment requirement.
• M1 Finance: Suitable for sophisticated investors who want access to customized expert theme-focused portfolios. It offers a high-yield cash account and low-interest-rate margin lending. It has a $100 account minimum ($500 for retirement accounts).
• Acorns: Best for those who struggle to save. It has a "round-up" feature that automatically invests your spare change. It charges a monthly fee of $3, $5, or $9, depending on the plan.
• Ellevest: Designed specifically for women investors, offering financial management aligned with their career and life situations. It has a $0 account minimum for the digital plan and $1,000,000 for private wealth management. The monthly subscription fee for the digital plan is $12.

Avoid mutual funds with high sales charges

Mutual funds are investment funds that pool money from multiple investors to purchase a diversified portfolio of assets. When considering investing in mutual funds, it is essential to be mindful of the fees and charges associated with them, as these can eat into your investment returns. Here are some tips to help you avoid mutual funds with high sales charges:

• Understand Sales Charges: Sales charges, also known as loads, are fees paid by investors when buying or selling mutual fund shares. These charges are typically paid to financial intermediaries such as brokers, financial planners, or investment advisors, and they can be structured in different ways. Front-end loads are paid at the time of investment, while back-end loads are paid when the shares are sold. Deferred sales charges are back-end loads that decline over time and eventually reach zero. By regulation, the maximum sales charge allowed is 8.5%, but most loads fall within the 3% to 6% range. It is crucial to carefully review the fund's prospectus to understand all the associated fees before investing.
• Opt for No-Load Mutual Funds: No-load mutual funds do not charge any sales loads or commissions when buying or selling shares. Instead, the fund's shares are sold directly to investors without the involvement of a broker, thus eliminating the need for sales charges. By investing in no-load funds, you can avoid paying the additional fees associated with loaded funds.
• Compare Fees Across Different Funds: Different mutual funds can have varying fee structures. It is important to compare the fees of multiple funds before making an investment decision. Consider the fund's expense ratio, which represents the annual fee charged for investment management and operating expenses. Also, look out for other fees such as management fees, 12b-1 fees (marketing and distribution expenses), and account maintenance fees charged by the brokerage firm.
• Consider Exchange-Traded Funds (ETFs): ETFs are similar to mutual funds but are typically passively managed, tracking a specific index or sector. ETFs generally have lower expense ratios and do not have sales loads, making them a more cost-effective alternative to mutual funds. Many online brokerage firms offer a range of commission-free ETFs, providing an attractive option for cost-conscious investors.
• Utilize Robo-Advisory Services: Robo-advisory firms, such as Betterment or Wealthfront, use computer algorithms to provide investment advice and manage portfolios for their clients. These services often charge lower fees, typically around 0.25% of the assets under management, making them a more affordable option compared to traditional financial advisors.
• Choose Low-Cost Index Funds: Index funds are a type of mutual fund that aims to replicate the performance of a specific stock market index, such as the S&P 500. They are passively managed, resulting in lower expense ratios compared to actively managed funds. Consider index funds offered by companies like Fidelity, Schwab, or Vanguard, which typically have fees of 0.20% or less.

Remember, investing without paying any fees at all is challenging, but by following these tips, you can minimize the impact of sales charges and other fees on your investment returns.

Opt for low-cost index funds

Index funds are a great way to invest in the stock market while reducing your risks compared to investing in individual stocks. They are also a good option if you want to minimise the time and money spent on investing. Index funds can offer attractive returns by reducing the fees you pay.

An index fund is an investment fund that tracks a specific collection of assets called an index. The index can include stocks, bonds and other assets, including commodities such as gold. The most well-known index is the Standard & Poor's 500 index (S&P 500), which includes about 500 of the largest publicly traded American companies. Other popular indexes include the Nasdaq Composite, the Dow Jones Industrial Average and the Russell 2000.

An index fund is a passive investment that tracks the assets included in the index. It does not actively invest in the market but instead tries to match the performance of the index by holding the same assets in the same proportions.

When choosing an index fund, it's important to consider both the index's long-term returns and the cost of owning the fund. You want to earn the highest return while paying the least amount of fees. The S&P 500, for example, has returned about 10% annually over long periods, though it has performed better over the last decade, averaging 12.6% from 2013 to 2022.

To check the cost of a fund, look up its expense ratio. This tells you what percentage of your investment you'll pay as a fee to the fund company. For example, if a fund has an expense ratio of 0.06%, you'll pay $6 annually for every $10,000 invested. Lower expense ratios are better for investors as they result in higher returns on investments.

• Fidelity Total Market Index
• Schwab S&P 500 Index
• IShares S&P 500 Index
• Vanguard Growth Index Fund Admiral Shares
• Vanguard Total Stock Market ETF (VTI)
• Fidelity 500 Index Fund (FXAIX)
• Fidelity ZERO Large Cap Index Fund (FNILX)
• Vanguard S&P 500 ETF (VOO)
• IShares Core U.S. Aggregate Bond ETF (AGG)
• Schwab 1000 Index Fund (SNXFX)

Compare fees across financial institutions

Comparing fees across financial institutions is a crucial step in making informed financial decisions. Here are some key points to consider when comparing fees:

• Identify the fees: Understand the different types of fees charged by financial institutions, such as transaction fees, account fees, management fees, and other charges.
• Understand the fees: Know what these fees represent and how they are calculated to determine the true cost of the service.
• Compare the fees: Look at the fee structures of different financial institutions and compare them to identify the most cost-effective options.
• Consider other factors: While fees are important, they are not the only factor. Also, evaluate customer service, convenience, reputation, and other features offered by the institution.
• Transparency and clarity: Choose institutions that are transparent about their fee structures and clearly disclose all associated fees. This includes management fees, transaction costs, and any hidden charges.
• Opportunity cost: Fees represent an opportunity cost, as the money could be invested elsewhere. Weigh the fees against the value provided by the institution.
• Tax implications: Consider the tax efficiency of different fee structures. For example, certain accounts like IRAs can minimize capital gains taxes.
• Bundled vs. à la carte fees: Some institutions offer bundled services with a single fee, while others charge separately for each service. Choose the option that aligns with your needs and preferences.
• Comparative shopping: Don't just focus on the fees; compare the overall value proposition, including features like research tools, customer support, and platform stability.
• Use fee calculators: Utilize online fee calculators to estimate the long-term impact of different fee structures on your investments or financial plans.
• Account maintenance fees: Charged for maintaining an account, such as monthly service fees or annual account fees.
• Transaction fees: Fees for financial transactions like withdrawals, transfers, or debit card usage.
• Overdraft fees: Charged when an account balance goes negative, typically incurred when a purchase exceeds the available funds in an account.
• ATM fees: Fees for using ATMs outside of the financial institution's network.
• Investment fees: Fees levied on managed portfolios or mutual funds, including management fees and expense ratios.
• Penalty fees: Fees for violating certain terms and conditions, such as late payment penalties.

By comparing fees across financial institutions, you can make more informed choices, maximize your returns, and reduce the overall costs of investing or managing your finances.

Frequently asked questions