A major concern of a smart income investor is to avoid broker fees.
Depending on the scale of your investing, it may not be possible to avoid them completely, but it is possible to keep them low.
Not Just Broker Fees, but All Investment Expenses Reduce Your Bottom Line
But let's not talk just about broker fees, but about all investment expenses. This includes brokerage commissions, mutual fund and ETF management expenses and fees, paying for advice, and taxes.
First of all, understand that this is a major -- though highly under-appreciated -- aspect of successful long-term investing, whether for income or for capital gains.
Your After-Expense Investment is More Important Than Stock Picking
Most people think picking the right stocks or mutual funds is most important to their success. In reality, how much they invest NET is much more important.
And the "net" is what is left over after all investing expenses are taken out.
Expenses Determine Results
John Bogle, founder of Vanguard, has studied the effect of management fees on mutual fund performance, and discovered that -- from money market funds to high tech sector funds -- the highest performing funds in each group were those that kept their expenses the lowest.
What's really interesting is that the amount of their performance above -- or below -- the average for their fund's type correlated almost exactly to the amount their expense ratio was either higher or lower than average.
Thus, a large cap growth fund that outperformed its peers (on average) by 5% generally had an expense ratio 5% less than its peers (on average). The large cap growth fund that underperformed its peers (on average) by 5% generally had an expense ratio 5% higher than its peer (on average).
Dividend Re-Investment Plans are Great
If you are a new, small investor who has only a small amount of money to get started with, you can open up a Dividend Re-Investment Plan (DRIP).
You open up an account directly with the company. They may have minimums, but they can be as small as $25, and the better ones will not charge you a fee to start or to take small deposits on an ongoing basis.
When they pay a dividend, they automatically use what your account has earned to buy more of their stock.
So DRIPs start out small, but they grow over time, and so can become big. Here's a list:
wall-street.com/directlist.html
Use Deep Discount Brokers
If you want a regular brokerage account, use a deep discount broker such as Scottrade, E-Trade, Ameritrade or others.
You'll pay around $7 or so to buy shares.
Buy stocks that pay dividends, and never sell them. That way, you'll eliminate all sell-side commissions and fees, as well as all capital gains taxes.
Exchange Traded Funds are Low Expense Investments
Exchange Traded Funds generally cost less than mutual funds, because they're not actively traded and they don't have the same operational expenses.
When you buy Exchange Traded Funds, first choose the ones put out by Vanguard, if any are available. If not, compare the management fees of the others and pick the ETF in that category with the lowest fees.
Where Available, Make the Vanguard Fund Your Default Choice
If you insist on investing in mutual funds, make Vanguard your first choice. They specialize in keeping their management fees as low as possible.
Never buy mutual funds through a broker or financial adviser, because they'll charge you a front-end sales load. Never buy mutual funds that charge a front-end sales load (some do so even when you open the account yourself).
Stay Away From Actively Traded Mutual Funds
Avoid actively traded mutual funds. Invest in index funds, because they keep taxable capital gains as low as possible.
Take Advantage of Tax-Sheltered Retirement Accounts
And of course, before you open up taxable investing accounts, take advantage of retirement plans available to you on your job. If your employer doesn't offer a 401(k), 403(b) or Federal Thrift Plan, open an IRA or Roth IRA. If you're self-employed, open a retirement account for the self-employed.
There you have it:
* Pay only small commissions to buy securities
* Avoid half of all commissions by never selling your securities
* Avoid taxes by using retirement accounts, by avoiding actively traded mutual funds and by never selling
* Avoid high management fees by buying Exchange Traded Funds and by avoiding actively traded mutual funds
* Use DRIPs to avoid all fees
Once You Understand the Basics and Income Investing, Invest the Money Other People Waste on Useless Advice
One last investing expense to avoid: books, magazines, newsletters, research, and other advisory fees.
Nobody can predict the future, so everybody trying to convince you when to buy and sell or what to buy or sell is a scam -- and I realize that includes the major mainstream financial magazines.
You need to educate yourself as to the basics of income investing and how to set up your own investing plan.
Then focus on making money to invest with, and don't waste time on meaningless noise, such as where the Dow Jones is today, and where commentators think it will go tomorrow.
Once you're an income investor who's aware of these choices, you'll be far ahead of the people throwing their money away on unnecessary investing expenses.
Author Resource:
You can build a permanent, income generating retirement portfolio. Click here to get the information you need to effectively make money from your investments whether the markets go up or down. If you're ready to discover how, as an income investor you too can retire with financial security, visit this page, enter your email address into the form and click on the Submit Button. Then go to your inbox and verify that. It's free for the taking. http://www.incomeinvesthome.com/.
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