June 18th, 2014 → 9:09 pm @ MacDev Financial Group| Stephen Devlin // No Comments
Investments exist to make people money – the problem is, those people often aren’t the investors! Many products are rife with extra charges and hidden fees that drain your returns so they can’t even keep up with inflation. The first step to protecting yourself is to know where to look for these costs.
Stocks & Bonds
Stocks and bonds usually require you to pay a commission on every purchase, or at least an annual asset-based fee for your financial planner’s time and advice. If you’re planning to hold your stocks or bonds for a long time, you won’t feel as much impact. But if you plan to trade them fairly frequently, you’ll pay a large chunk of change on the “spread.” The hidden fee is what your broker makes on each transaction, since the price you pay for the stock is likely significantly higher than the price they bought it for in the first place. Think of it as the wholesale price versus the retail price.
Target Date / Mutual Funds
Different mutual funds have different fee structures, and some are subject to additional fees that you won’t find in the large print (you’ll probably have trouble seeing them even in the fine print!). These fees are typically found in larger brokerages, paid as a bonus to brokers who sell certain funds to their clients. Not only do you have to pay these fees, but also the broker’s upfront (or ongoing) commission. Don’t forget about the shareholder servicing fee, account maintenance fee, and revenue-sharing fee either. Mutual fund fees such as these can have a negative compounding effect over the course of your investment, which can in some cases amount to a whopping $8,000 over the course of 30 years.
Index Funds
Even “low cost” index funds might not be as economical as you think. There can be a wide range of fees, even with these!
Your RRSP
While there isn’t usually a charge to open an RRSP, some institutions might impose a set-up fee. However, all RRSPs have annual fees which are either covered by your employer, or by you. Make sure you know which! And, if you hold mutual funds or ETFs in your RRSP, you’ll be charged a management fee (MER). You also pay a commission when you buy or sell ETFs and stocks within your plan, and sales charges for buying and selling mutual funds.
Now, Dividend Paying Whole Life Insurance also has fees attached, but we make a point to be upfront and honest about how we are paid, how much we are paid, and what you can expect to get from paying those fees. The way we structure our policies maximizes your ability to grow your cash value fast, which may not be the most lucrative choice for us, but it is for you! We’ll even tell you how much your plan will be worth three years from now, ten years from now, or 30 years from now (try asking your broker that question!).
Tags: CPA, Financial Advice, retirement advice, retirement information, Tax Advice, Tax Information, Tax Tips
