Cost containment is an essential element of successful investing. The lower your costs, the more return you get to keep. Commissions, advisory fees, expense ratios, transaction fees, and bid-ask spreads can all add up to some serious money. Here's our plan:
- Avoid commissions. Commissions are expensive and lead to conflicts of interest. In today's market, there are plenty of no-load investment options.
- Advisory fees must be competitive and add value. There is a cost to electing investment management services. Value must be derived in some manner (potential increased returns, potential tax savings, convenience, time savings, less worry, etc.) or it is not worth the cost.
- Use funds with low expense ratios. Expense ratios cannot be avoided, so they should be minimized. There are plenty of great investment options with very low expense ratios.
- Minimize transaction fees. Use a "buy-and-hold" approach to avoid frequent trading. Go direct to a fund company. Use ETFs without transaction fees (available at some discount brokers).
- Avoid higher bid-ask spreads. Use well-known ETFs that have a higher trading volume to minimize the difference between the buy price and the sales price.