 Personal Finance PowerPoint Presentation. Stock Commissions and Fees. Prepare to get financially fit by practicing personal finance. Most of this information comes from Investopedia, how to keep commissions and fees from eating and trading profits, which you can find online. Take a look at the references, resources, continue your research from there. This by Chris Gallant, updated December 18th, 2021. In prior presentations, we've been looking at investment goals, investment strategies, investment tools, keeping the two major categories of investments in mind, fixed income, typically bonds, equities, typically stocks, also keeping in mind other tools that we might use for investments, such as mutual funds and ETFs, helping us to diversify. Now we're gonna be looking at how do I keep commission and fees from eating trading profits? So you work hard for your money and you should be able to keep as much of it in your pocket as possible. But if you're thinking of investing your hard-earned cash to increase your net worth, there are some things you should keep in mind. Investing comes at a cost, so does everything. That's life, that's life, man. There's certainly risk involved, which can eat away at your profits, but something else that can chip away at your bottom line is the cost from fees to commissions. So obviously when we're making the trades, when we're making the investments, we wanna take into consideration the fees and commissions and clearly lower them as much as we can while we can still do what we want to do. And it can all add up. So can you actually put your money away and keep your expenses low? The short answer is yes. Read on to find out more about how to keep these costs from depleting your profits, types of investment fees. So we first have to know what the monster is. What are these fees that we're looking at? Most investments come with some kind of fee. It's one of the only ways banks and other firms can make money. So obviously they're helping to facilitate the trade here. That's a great tool. You might be thinking like you think about a bank or for example, and you're thinking, how can they possibly be doing that? Basically letting, you know, facilitating my transactions and so on. Well, the bank is typically holding onto your reserves and investing those, making a profit from them. So not all your money is in the bank at any given time. Obviously if you're investing in stocks and so on, in order to facilitate the transactions and whatnot, there are typically gonna be fees and charts involved with that. So by charging you a fee, these institutions can keep running and offer you their services. Even the simplest investment vehicle comes with some form of service charge. That makes sense because these are businesses we're talking about, which is good because businesses are gonna try to lower their fees and compete and that's better than being government run or something like that, which blows up and doesn't run efficiently. So most savings accounts, for instance, charge a fee if you don't keep a minimum balance and you will incur a service charge if you make more than one withdrawal a month. So when you're talking about savings accounts, then the benefit to the bank in a savings account is that they're gonna not hold onto all your money, they're just gonna hold onto a reserve and then invest it so that they're gonna be making income on the investments. That's how they manage it. But if you have a very small amount in the account, it's not worthwhile for them to basically do that. And so they might charge fees for that smaller amount. If you go over a certain threshold, then they might be waiving the fees because now you have enough invested that they can make money by taking the excess over the reserve and investing it. So it's your money, so why do you get hit with a fee? The account is, after all, meant for you to save your money and they're taking money out with a fee. So this principle of charging a fee is pretty consistent across the board. Businesses charge you money in order to keep and handle your accounts, clearly. So, but they also do the same when you want to move your money around. At times, you may feel like you're paying more than you're investing. Surely, so clearly the other time the fee might happen is when you're moving money from one place to another when you're making investments, when you're cashing out investments. Surely there must be a way to keep that at a minimum, right? Of course there is. But before we outline how you can keep your money in your account by not paying outrageous fees, here's a quick look at some of the most common expenses that come with investing. We've got the brokerage fee. A brokerage fee is charged by many different financial services companies, including brokerage firms, real estate houses, and financial institutions. This fee is normally charged annually to maintain client accounts, pay for any research and or subscriptions, and to access any investment platforms. These fees may also cover instances if and when an account goes dormant. Brokerage fees may be a certain percentage of the balance held in a client's account or a flat fee. So they might be based on how much you have or just a flat fee for managing it. Commissions then, brokers and investment advisors often charge clients commissions for using their services. These are also called trading fees. They basically pay for any investment advice or to execute orders on the sale or purchase of securities, including stocks, commodities, options, or exchange traded funds. So this is the ETF. So the brokerage fees, things that they're gonna be basically like an annual kind of fee that might be a fixed rate or based on your account. The commissions happening as basically trading takes place. So commission charges vary from firm to firm. So it's important to verify a brokerage fee schedule before you decide to use their services. You got management or advisory fees then. Management or advisory fees are charged by companies that run investment funds. Funds managers are compensated with these fees for their expertise. So when you're investing in funds, for example, pooling the money together in funds managed by an expert, that expert then needs to be paid with the management or advisory fees. Now you might say, I'm not sure I want the fund manager. Maybe I just want to invest in index funds, for example, which means you might still have a manager, but they wouldn't have so much leeway. You wouldn't be dependent on their experience so much possibly lowering the fees as they just tag the fund to an index and average. So although they can vary between funds, most of these fees are based on percentage of the assets under management AUM in each fund. So the basics of trading expenses, there is no universal system regarding trading commissions or other fees charged by brokerage firms or other investment houses. Some charge rather steep fees for each trade, while other charges very little depending on the level of service they provide. A discount brokerage firm may charge as little as $10 for a common stock trade or even less, while a full service broker may easily charge $100 or more per trade. So how much you pay actually has more to do with the amount of money you invest in each trade rather than how often you trade. If you only have $1,000 to invest in a trade and you're using a discount broker who charges $20 per trade, 2% of the value of your trade is eaten away by the commission fee when you first enter your position. When you eventually decide to close out of your trade, you will likely pay another $20 commission fee, which means the round trip cost of the trade is $40 or 4% of your initial cash investment. This means you will need to earn at least a 4% return on your trade before you break even and begin to make a profit. With this type of fee structure, which is quite common, it really does matter how often you trade. So now you're thinking if they charge you per trade, now you gotta be thinking, well, I'm gonna limit the number of trades that I'm going to be wanting. I don't wanna be do day trading in that case unless I'm making substantial profits in the day trading because the more trades I have, the more cost it will be. So all that matters is that your trades make enough of a percentage gain to cover the costs of your commission fees. However, there was one caveat. Some brokerage firms have commission discounts to investors who make many trades. For example, a brokerage firm may charge $20 per trade for its regular customers, but may only charge $10 per trade for customers who make 50 trades or more per month. So if you are someone who makes a lot of trades, you might be looking for a brokerage firm that will give you a lower discount for multiple trades making a higher level or volume of trades. In other cases, investors and brokers may agree to a fixed annual percentage fee. So this is another kind of method that might be used, a fixed annual fee. Because you pay the same annual percentage fee, it doesn't really matter how often you trade. So then you don't have to put as much scrutiny on the trades in of themselves because it's gonna be under the fixed annual fee. Keep your expenses down, even though fees are an integral part of the financial system, you don't have to be beholden to them. There is a way that you can keep your expenses down and continue investing. Consider investing your money with a firm that charges no commissions or fees for the stock and ETF trades. More firms, especially small companies and those that are new to the game are adopting this structure to attract and retain clients. So clearly if you're looking at the up and coming firms, you got that competition in the market driving down their fee structure and how they're gonna be putting that together. Some of these firms also waived the minimum deposit requirement so you can start off with a low balance at no additional cost. You will, however, want to check on their fee structure for other investment vehicles along with any other fees they may charge to see if it balances out. Automated investment platforms may also help cut down on your expenses. So we got the robo advisors are a relatively new trend in the financial industry and can be great for small investors because they have low fees. This means more money in your pocket. They can afford to do this because they're automated so they don't have anyone physically managing client accounts. Instead, robo advisors use algorithms to maintain and allocate your holdings according to your risk tolerance and investment goals.