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Tuesday, November 16, 2004

How much are your investments costing you?

Investing has long proven to be one of the most important ways to accumulate wealth over time. How much is it costing you though? Many people don’t realize that much of their investment is going to their broker or mutual fund company. The Cheapskate recommends evaluating your investments and your broker at least twice a year.

Mutual funds are a great way for novice investors to play the market. However like everything in life mutual funds are not free. Mutual funds charge a fee once a year, and sometimes a load when you buy or sell. This charge averages about one percent of your investment. If you were to invest $10,000 in a fund that had a load of 1%, that is $100 a year out of pocket. Compare the fees associated with any investment before buying. Another thing to keep in mind is that exchange traded funds (ETF’s) and index funds have much lower expense ratios than there actively managed counterparts.

For those of us who like the excitement and the research involved in trading individual stocks, evaluate your broker. Many traditional brokers can charge well over $30 a trade. This is a high price to pay especially if you are doing the legwork yourself. Scottrade is probably the cheapest and the best online broker around. Trades are just $7. Sharebuilder allows you to buy for $4, but trades to sell are $15. This is still a good deal if you plan to buy many times and sell once. The Cheapskate recommends keeping all transaction cots under 5% of the investment.

Visit my finance blog www.tickerblog.com if you like to discuss stock ideas.

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