Thinking about investing your money? Then, you will need to understand more than just how profitability works. You will need to deeply understand brokerage accounts, online platforms, and… What are investment fees involved in your investments! After all, these fees have a direct impact on the profitability of your investments.

As a result, in order to determine how much of a return a certain investment may provide, the raw return is not the only factor to consider. This means that to determine the true profitability of certain investments, you must also include the investment fees that will be levied and deduct their value from the final result. Otherwise, your profitability estimates will be incorrect.

Sounds tricky, right? This is why we have broken down the most important information about investment fees. Continue reading to understand this concept better!

As an investor, some fees will become part of your financial life. This is why we compiled the list below with the respective definition of each type of fee. Get to know the main investment fees and avoid surprises.

Expense ratios are the investment fees that you annually pay when you decide to invest in a mutual fund or an Exchange Traded Fund, or ETF. These ratios cover the operating expenses of these types of products. It compensates fund managers for overseeing the investments, as well as managing the strategy used.

Moreover, it is calculated taking into account the total expenses and assets under management of the fund. Finally, it is usually seen as a percentage of your investment.

Also charged in mutual funds, this fee can be charged as a load, for commission-only advisors, or as an advisor fee, for fee-only advisors. Or, maybe, a mix of both. This fee is annually charged as a percentage of the amount of your money is managed. But usually, the fee decreases as the balance of your account increases.

Typically, there are two types of fees: transaction fees and ongoing fees. The former is charged each time you enter into a transaction. For example, when you buy a stock or mutual fund.

Transaction fees are charged due to the broker-dealer’s or the bank’s assistance during the sale or purchase of an investment product. Like all fees, transaction fees reduce the overall amount of your investment portfolio.

Commission fees are an example of transaction fees. You will probably be charged a commission when you buy or sell a stock through an investment professional. It compensates the professional and his/her company when it is acting as an agent for you in your security transactions.

There are commission-based charges, paid to an advisor/broker who sells investment products like mutual funds and annuities and conducts transactions with your money. On the other money, there are also fee-based charges, a flat rate paid to an advisor for managing your money.

A custodian fee is charged to pay the brokerage that holds your securities on your behalf. This reduces the risk of you losing your assets or having them stolen. They are also used by brokerages for them to sell at your demand. Like any bank, custody services give the investor a storage place that presents only a small risk.

But unlike a bank, custodians are not allowed to use the items held for their own ends. Because custody assets are under your own name, they are not fungible for the brokerage.

The faster answer is: the lowest amount possible. For example, the number “1” may seem small, but when it refers to a percentage of your invested money, it can make a huge difference in the price of fees. Just do the math and you will see.

So, we advise that you invest in products that charge fees right upfront. This way, it is easier for you to prepare yourself strategically. An example is a front-end load fund. However, be aware that the lowest fees available out there do not mean that you will be saving money.

Why? Because let us say that you decided to hire a brokerage that is less expensive. But if this company does not offer you the best educational features and you will not have a specialized team at your disposal, who knows if you will not be missing out on incredible profit opportunities.

Therefore, our final advice is that you do some leg work and find a balance between price and growth opportunities. But to help you start on this journey, below is a list of highly recommended investment firms with low fees.

Below is a list of highly recommended investment firms, together with their main rates, fees, etc. And in case you would like other recommendations, we have a whole section on our website full of recommended firms.

Now that you know how they are charged and what the primary investment fees are, you can evaluate the true profitability of your financial assets accurately.

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Wanna know more about brokerage accounts that could be useful for starting your investments? So, check out our special article listing the best online brokerage accounts next!