STRATEON INTELLIGENT WEALTH INSIGHTS
What Are Your Investments Really Costing You?
by Mike Halper 10/22/2021
If you're unsure about the hidden costs of your investments, you're certainly not alone. Investment costs are rarely obvious, often buried deep in fine print or disguised behind marketing hype. Understanding these costs is essential, as every dollar spent on fees is a dollar less growing towards your financial future.
Part of Strateon Intelligent Wealth's mission is to illuminate these hidden expenses and help you keep more of your money working for you.
Understanding Investment Costs
Investment costs primarily fall into two major categories:
Fund Management Fees
Custodian and Brokerage (Trading) Costs
Let’s dive deeply into each.
Fund Management Fees
When you invest, you typically use mutual funds or exchange-traded funds (ETFs). These funds pool investor money to efficiently buy thousands of individual securities, saving you the hassle of managing investments individually.
What is a Reasonable Fee?
The primary fee charged by funds is known as an expense ratio, an annual percentage of your invested assets. Expense ratios can range dramatically:
Low-cost, broad-market index funds: typically around 0.05% or less (5 basis points).
High-cost, actively managed funds: often near or above 1% (100 basis points).
Higher fees do not necessarily translate to better returns—in fact, they frequently erode your earnings over time.
Additional Fund Fees to Watch Out For
Some funds charge extra fees, including:
Front-end loads: Charged when you buy fund shares.
Back-end loads (Redemption fees): Charged when you sell shares.
Contingent deferred sales charges (CDSCs): Additional fees upon selling within certain periods.
Always carefully review fund prospectuses for these fees.
The Hidden Truth Behind Fund Fees
Fund management fees are not directly billed to you. Instead, they're subtly deducted from fund returns, making them easy to overlook—but they still reduce your overall investment performance significantly.
A revealing study, "Obfuscation in Mutual Funds" by leading academics, highlighted how fees affect returns dramatically. Two nearly identical S&P 500 index funds showed gross returns of about 31.47%. However, one fund charged just 0.02%, while another levied a staggering 5.08%. Clearly, lower-cost funds leave more money in your pocket.
Moreover, higher-cost funds often obscure their fees in complex documents, while low-cost funds usually provide transparent and easy-to-understand fee disclosures.
How to Choose Funds Wisely
Identify your goals and select relevant funds.
Compare expense ratios among similar funds.
Avoid funds charging loads or excessive fees.
Favor simplicity and transparency.
Custodian and Brokerage Costs
Your investment accounts are held by custodians (like Schwab, Fidelity, Robinhood, or Wealthfront). Custodians execute trades through brokers—another potential source of hidden expenses.
The Myth of "Free Trading"
Recently, many platforms have advertised "commission-free trading," but this can be misleading. Custodians and brokers must remain profitable somehow, often through hidden methods such as:
Cash Sweep Accounts: Your uninvested cash is placed into low-interest, in-house bank accounts, allowing the custodian to earn significant returns at your expense.
Payment for Order Flow: Custodians receive payments for routing your trades to particular market makers. This can sometimes lead to less favorable trade execution, indirectly costing you money.
Bond Markups/Markdowns: Trading individual bonds involves undisclosed markups or markdowns, hidden costs that boost broker profits.
Real-World Examples
Robinhood was fined $65 million by the SEC for failing to disclose true trading costs linked to payment for order flow practices.
Bank sweep accounts historically offer lower interest rates than market alternatives, quietly boosting custodian profits.
Advisor Fees: Transparent & Objective
You could manage these complexities yourself, but Strateon Intelligent Wealth offers something far greater—comprehensive fiduciary financial advice and transparent fees.
Benefits of Hiring Strateon Intelligent Wealth:
Independent and Fee-only: No hidden incentives or commissions.
Holistic Wealth Advice: Comprehensive financial planning beyond mere investments.
Clear, Transparent Fees: Always know exactly what you're paying.
Strateon Intelligent Wealth Helps You With...
Tailored investment portfolios matching your goals and risk tolerance.
Strategic use of insurance to protect your wealth.
Retirement spending strategies, including tax-efficient withdrawal planning.
Optimizing Social Security benefits.
Comprehensive estate planning and beneficiary reviews.
Business wealth integration, including corporate stock options.
Tax-efficient charitable giving.
Strateon Intelligent Wealth's Fiduciary Commitment
We align entirely with your best interests, not hidden agendas. Our approach minimizes unnecessary costs, optimizes returns, and diligently manages risks—providing measurable value far beyond mere "investment management."
When you choose Strateon Intelligent Wealth, you're selecting a partner dedicated to clarity, efficiency, and your financial well-being. Let us help illuminate and eliminate unnecessary investment costs, freeing you to achieve your most important financial goals.
The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Digital assets and cryptocurrencies are highly volatile and could present an increased risk to an investors portfolio. The future of digital assets and cryptocurrencies is uncertain and highly speculative and should be considered only by investors willing and able to take on the risk and potentially endure substantial loss. Nothing in this content is to be considered advice to purchase or invest in any security, digital assets, cryptocurrencies, or any other investment. Some content may be developed from sources believed to be providing accurate information.
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