A:

Investing fees include annual maintenance fees, commissions paid when buying or selling securities, management fees and advisory fees, depending on the type of account and services you choose. Keeping investing fees low yields higher net returns on the account, but you may lose out on key benefits or services that could, in fact, be worth the cost.

To take advantage of lower investing fees without sacrificing decent returns, look to index funds and exchange traded funds (ETFs); both offer built-in diversification with low expenses. These investment vehicles can help build a solid portfolio without the need for an investment advisor managing the account at an average annual rate of 1%, according to Forbes.

Mutual funds also offer diversification and even active management at a much lower cost than if you were to buy the same basket of stocks or bonds individually to mirror the portfolio. Mutual funds have management fees, annual expenses and sales charges, which are paid whether you invest through an account directly with the fund company or through a brokerage account. Oftentimes, accounts directly with the fund company have lower annual maintenance fees than those at a traditional brokerage firm. Regardless of how you purchase mutual fund shares, consider each available share class carefully to decide which best suits your investment time horizon, and be aware of discounts called breakpoints.

In order to understand breakpoints take the following example. If you plan to make a one lump-sum investment and hold the shares for a long period of time, A-shares that charge an up-front sales charge of up to 5.75% but have low annual expenses would generally be more cost effective than C-shares that charge a lower up-front fee but have higher annual expenses. The A-shares would thus capture more returns over time with less going to pay for fees. Furthermore, the more money you invest in the A-share class within the same fund family, the lower the sales charge due to breakpoints. Always consider breakpoints if you are eligible when making a mutual fund purchase.

Annual account maintenance fees can also eat into your returns. Many online trading accounts have low or no account fees, along with low trading costs. However, these types of accounts also offer little to no investment advice, oversight or management from an investment professional. It is therefore important to consider the level of service and investment advice that is right for you.

If you still want to use an investment professional to help you manage your assets, look for an advisor that charges a fee based on assets under management. This fee structure, as opposed to paying commissions on each trade, rewards the advisor for good performance. When your account value increases, so does his income. In this way, you can achieve good returns through the help of an advisor who has an incentive to grow your assets, not just make a transaction. These fee-wrap accounts often have negotiable fees that are tiered depending on the size of the account.

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