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Do Investment Fees Really Matter?

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For anyone who pays attention to investment funds or stocks, you’ll notice that all of them charge fees. With all the choices and associated numbers and ratings that go along with investments, it’s no wonder that fees can be confusing or misunderstood. In the whole scheme of things, do investment fees really even matter?

What Fees Am I Paying?

Depending on how you invest, fees can vary greatly. These are some of the more common fees investors can expect.

Administration Fees– This is the fee that plans charge to pay for day to day operations like accounting, legal bills, customer service, and website support. You can expect administrative fees with most 401(k) type plans or with other industrial accounts. Since I fund my HSA through an administrator that invests in the stock market, I have a $50 administrative fee due every year.

Investment Fees– These fees cover the cost of managing a fund and are taken as a percentage of the assets invested. Investment fees can vary greatly. Low cost index funds can be less than a tenth of a percent while some actively managed funds can be several percentage points.

Individual Service Fees-These are fees that come from extra services like signing up for retirement planning or taking a loan against a 401(k). You do not have to agree to extra services if you choose not to.

Load or Commissions– This type of fee comes from the transaction cost of buying and selling shares. There might be a front end load, which takes money at the time of initial investment, or a back end load, which takes money when an investment is sold. You can choose no load funds that do not take either type of commission.

Trade Fees– These are one time fees that occur when you purchase an individual stock that isn’t part of a retirement plan. Trade fees are pretty straightforward, and there are some platforms that work better to minimize these fees for those who don’t have huge sums of money to invest.

How Much Should You Worry About Fees?

Fees can certainly steal a large chunk of investment dollars. One reason is because they aren’t always obvious and can get lost in the ups and downs of the market. There are also some unscrupulous financial advisors that care more about padding their own pockets than your money. It’s important to do your own research or find a financial planner you trust, preferably one who isn’t based on commission.

That being said, for most investors, fees don’t really matter that much, at least in the beginning. I’ve know several people who want to invest, know they should invest, and have money to invest, but don’t because they are afraid of making the wrong choices.

No one wants to put their hard earned money into a bad investment that eats up profit with fees, but choosing an investment with high fees is almost always better than not investing at all.

Let’s say you have no clue how to set up a fund with a low cost brokerage and use a commission based financial planner. He chooses a fund that returns 8 percent over 10 years time. Sure it would mean more money in your pocket if the fees were half a percent, but even if they were 2 or 3 percent, you’d still be earning way more than you would by keeping money in a savings account or worse, by spending it on things you don’t need.

Maybe your work plan only offers funds with higher than optimal fees but gives a 6 percent match plus tax savings for investing in a 401(k) type plan. It’s better to invest and take the free money. You can always transfer to a lower fee index fund after you leave the company.

High Fees Are Better than not Investing

If you want to see how your investment plan fees compare to other brokerages, try the fee analyzer at Personal Capital. It’s free to sign up, and they can give suggestions about how to minimize fees.

There are also ton of low cost investment platforms that offer great service and low fees. I personally use Vanguard, Motif, and Betterment for various purposes and have been happy with all of them. However, as I said, it’s almost always better to deal with high investment fees than to never invest at all.

Do you pay attention to investment fees? Have you known anyone who is so scared of making a bad investment choice that they don’t invest at all? 


About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.


  1. While fees are important to keep track of, I don’t think it is the most important thing that can affect your investments. Your behavior while investing can play a much bigger role If you don’t stick to an investing plan and continually buy and sell whenever the market makes big moves, you can affect your investments more than fees will.

  2. I think fees can very much be a huge issue when it comes to investing. The SEC has a stat that shows a .75 difference in fees will add up to $30,000 out of a $100,000 portfolio in 20 years.

    That being said, I think the last thing it should do is hold someone back from investing. Paying high fees is much better than putting off investing altogether. I know it’s easy to get caught up in how much the commission you pay or the fees you’re paying, but it’ll hurt you much more in the long run by just avoiding investing. I say get started and use one of the many tools out there to help you if you’re concerned you’re paying too much.

  3. Fees definitely play a role, but like you said it is better to invest your long term money in a good fund that may have higher than normal fees compared to having it sit in your checking account. People need to be especially careful with 401k plan fees. They are obligated by law to disclose them, but you do have to do some digging to find some of them. Many people think they pay no fees in their 401k, but that is almost always never true. I would personally rather find ways to reduce fees thank find ways to eke out an additional 1% of return.

  4. I recently heard about someone who was paying SO MUCH in investment fees each year and they had no idea. It was something like $3,000 in investment fees and they didn’t have a large amount invested in the first place. I’m not sure how they didn’t notice but that is one case I will always remember.

  5. I’ve got some investments with work that charge fees. In my individual dividend stock purchases, however, I decided that the smaller the transaction charge and other additional fees were, the more money I get to keep. Therefore, it’s Loyal3 and TradeKing for me in these investments.

  6. Lack of investing is definitely worse than fees. High frequency trading, commissions and income taxes are a down fall too. And never forget the cost of a bad investment, as compared to a standard index.

  7. Investment fees are like other expenses. You have to know what you are paying and what you are getting. I’ve been reassessing my investments, and have found a few investments where I can find cheaper funds with similar holdings and returns. Those are getting switched. But with some holdings, I’ve decided the returns outweigh what I’m paying in fees. You just have to make sure you are making conscious decisions about paying the fees.

  8. High fees are better than not investing, yes. But have you watched The Retirement Gamble on PBS? It is some scary stuff!

  9. It’s really worth it to invest if you are knowledgeable about it. And, for those who aren’t, they’d need to research more. It’s good that you know how money and gain work in investment. It create personal connection between investor and investment.

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