Beat Back Investment Fees

Making a buck on your investments is tough enough without watching your profits nibbled away by fees that are pesky at best and punitive at worst. The best way to avoid them is to deal with firms that offer the best value for the services you want.

Lance Cashion saved $3,200 in commissions over the past year by using a broker that's in sync with his investing strategy. Cashion, a 33-year-old technology executive at an insurance firm, frequently trades stocks and options. But the fees at TD Ameritrade "were killing me," he says. TD Ameritrade charges $9.99 per online stock trade, and $9.99 for an options trade plus 75 cents per contract.

So last year Cashion made the switch to Zecco Trading, which at the time offered ten free stock trades per month on accounts with $2,500 or more and charges $4.50 per stock trade thereafter. For options, Zecco charges $4.50 per online trade plus 50 cents per contract. "I'm going to go wherever the free trades are," says Cashion, who lives in Fort Worth.

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But commissions aren't everything. Cashion and his wife, Kathryn, keep their retirement assets with TD Ameritrade because they like the firm's service.

Online brokers now charge an average of $10 per stock trade, says Adam HonorŽ, of Aite Group, a financial research firm. That's considerably less than the $30 or more that full-service brokers charge for an online stock trade. If you don't need the extra attention, don't pay for it.

Buy-and-hold investors should avoid brokers that charge an inactivity fee. E*Trade, for example, slaps a fee of $40 per quarter on account holders who don't make any trades.

Investors with smaller balances should also mind account minimums. Vanguard, for instance, has a well-earned reputation for low-cost mutual funds. But it charges an annual service fee of $20 for each fund with an account balance of less than $10,000. You can avoid the charge by signing up for electronic delivery of your statements.

To encourage customers to use electronic statements, some firms charge for a paper trail. TD Ameritrade bills customers $2 per month for paper statements.

Transfer fees can hamstring you if you want investment options that aren't on your firm's menu. Charles Schwab charges $25 to move part of your balance to another firm and $50 to move the entire amount.

Most broker fees are clearly listed on a firm's Web site or in a brochure. One glaring exception is the 12b-1 fee, which is really a sales charge in disguise. Funds may tack on the fee -- up to 1% of your investment -- to their expenses, supposedly to cover marketing and distribution costs. It's actually used primarily to pay brokers or advisers who sell you the fund. Nevertheless, a fund is allowed to bill itself as "no-load" as long as its 12b-1 fee is 0.25% or less per year. And you'll have to check the fee table in a fund's prospectus to see if it charges a 12b-1.

If you build your own portfolio, selecting no-load funds can save you more than 5% in sales charges. And over the long term, the top-performing funds tend to be those with the lowest costs (see "Mutual Funds," on page 51). A fund's annual operating expenses (its expense ratio) are calculated as a percentage of the assets you have invested. Invest $10,000 in a fund with an expense ratio of 1.5%, and you'll pay $150 per year.

Avoid stock funds that have an annual expense ratio of more than 1.5% and bond funds with a ratio of more than 1%. If you invest in a fund of funds, such as a target-date retirement fund, make sure it doesn't charge a management fee on top of the expenses levied by the underlying funds.

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