Let’s play “complete the word.”
We know it’s a bad word. We know it starts with “f.” We know it has four letters. We know this course is rated PG-13. So that must mean the word is:
Yup, fees. Those nasty buggers that strip away your hard-earned money. The bad news is they are inevitable, but the good news is you will learn the many forms they take and how to reduce them.
Let’s get started.
Transaction fees. Transaction fees are usually flat fees for buying or selling an investment. They tend to not be that much. They could be $10 to $50, typically. For example, if you want to buy 1, 100, or 10,000 shares of Disney, you’d have this flat fee.
Commissions. Those are the fees you pay your broker or advisor. They are usually a certain percent of the total transaction. The bigger your buy or sell order, the bigger the commission. Think about selling your house. If you sell for $100,000, the standard 5% commission is $5,000. If you sell for $200,000, the same standard 5% commission is now $10,000.
Loads. Okay, so how to explain these? They suck. I don’t even need to tell you what they are. All you need to know is they suck. If something sucks, it’s probably a wise idea to avoid it. Pop quiz. Should you buy an investment with a load? NO!
Fine, I’ll tell you what loads are.
A load is like a commission.
If you want to buy an investment with a load, you have to pay a certain percentage for the right and the privilege to invest in the investment.
How sweet and kind of them! For example, if the load is 5% and you invest $100,000, only $95,000 is going into the investment and the other $5,000 is going into someone’s pocket. How not so sweet and kind of them.
But that’s not all!
If you order now, you’ll get screwed even further. Investors noticed these loads and they didn’t seem to like them, so instead of getting rid of the loads (that would be silly), the investment folks said, “No problem. We understand. You don’t have to pay us any load when you buy the investment. Aren’t we nice? Oh, but by the way, when you sell the fund, there’s going to be a load.” If this program wasn’t PG, I’d say a series of F words right about now.
I better stop right here for this lesson. I’m getting too worked up. But don’t worry: I’ll be back in the next lesson to talk to you about something very important when it comes to investing. You won’t want to miss it.
The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.
About the Independent Financial Advisor
Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.