Cut out the middlemen

The investment advisor industry lives of commissions. Everyone has the best investing strategies that they will charge you an arm and a leg for. Once you are done paying commissions, you gain are typically worse than the market average. Get of this treadmill if you want to make real money.

Commissions are a big reason for this. We have already illustrated a scenario where commissions and fees eat into the majority of your gains. These days, brokerage commissions are zero or pretty close to it, whether you choose an app based broker or a regular one. One step above this is the fees that fund managers’ charge.   Minimize this with low cost ETFs and index funds instead of option for fancy mutual funds that rarely outperform the market.

To make our point even more precise, paying one percent of your assets as fees in unjustified. Instead, stick to funds that charge lee than 1% every year. The only exceptions are the closed end bond funds. Minimize your trading activity and choose discount brokers who charge zero commissions. The easiest way to make money is to stop losing it. Think of the following example when you evaluate prospective fund investments.

Let’s say you are filling a bucket with eater, but this bucket has a large hole at the bottom. The amount of water you will need to pour into the bucket needs to overcome the water that drains at the bottom. That hole at the bottom is how fees behave when it comes to investment performance. You cannot eliminate the hole when investing in funds, so it is important to minimize it as much as possible.