Hidden fees that are costing you half of your retirement
I’m sure many of you would have heard the term you get what you pay for.
Another way of saying this is that you get what you put in.
All too often those starting out in the market are looking for the cheapest version of everything they can find.
In fact, many times I get asked where they can find something for free.
You need to ask, what kind of motivation does a person who wants the cheapest thing have, and more importantly what do you think their chance of success is?
However, I don’t want to talk about that today.
Instead I want to chat about the cost and more importantly some of the hidden costs in the stock market.
There is no lie that there are hidden costs and expenses in the stock market that you need to be aware of.
Whether it’s brokerage fees, managed account fees, entry or exit fees, or others.
If you are not aware of what you are doing chances are you will be charged more than you realise.
There is always a lot of talk around bank customers being charged hidden fees from the banks and others in the financial services industry.
Some are even charged for services they did not ask for. In many instances if this occurs to you, what happens when you investigate is that you realise that you have actually agreed to them without knowing it because you did not check the fine print, or one of the thousands of emails you got in any one day advised you charges were being added or increasing.
Early this year, I wrote an article for a leading money magazine about retirement savings for millennials.
If you want to read the article, click here.
What I shared with readers was that the difference of 1% in your superannuation account can increase in your account fees can do.
In short it could cost you half of your money come retirement. Yes you heard that right, half.
The sad reality is that most people are paying too much in servicing fees, worse still is that they are not doing anything about it.
Now you cannot tell me that you don’t care about paying more fees.
Because I think most people do. Maybe we lack action because we are not sure what to do or we deem it too hard or too big an effort to try to tackle the bank.
When you look at the bigger picture over decades and you realise that extra fees can be half of your entire life’s savings, isn’t it worth spending a little time ensuring you’re getting the best deal possible?
Look at it this way: it is not just a few dollars per month, but thousands in the final years of growing your retirement savings.
The same thing applies for the stock market and investing in general. Investors often over pay for services such as brokers who often provide them with average advice and at times mediocre investments.
In most cases people with just a little bit of knowledge can do better themselves than getting stock tips from brokers.
So why would you pay extra for no added value?
Investors are far better off learning a few simple rules around buying and selling, and this allows them to use an online broker who just processes trades and does so more cheaply.
Again you do pay for what you get, so you need to ensure you are getting value for the services you use.
Sometimes all it takes is a little common sense and some effort and you can easily reap the rewards. Often I find those new to the market are paying for services they don’t need and sometimes their bills can run into hundreds and thousands of dollars per year.
Areas you need to look at where costs can blow out or are unnecessary, include broker commissions, management or custody fees and charges, acquisition costs and platform fees.
You also need to consider the hidden costs, such as what are promoted services that offer free brokerage.
Remember nothing the financial world is free.
Fees are hidden in the Bid-ask spread, there are also transaction costs hidden within underlying funds such as ETFs.
Whether you are an investor or trader you will pay fees and you need to know what they are, as extra fees will eat into your profits and these extra fees affect the compounding of your capital.
It is important to remember that everyone in the financial services industry wants to get some of your money and it is your job to ensure you get value for your money.
So let’s get into the charts.
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