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8 Investment Fees Every Investor Needs to Understand

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

While the focus in investing is often on returns, it’s important for investors to understand the impact of expenses on their investing results.

An investor bulletin published by the Securities and Exchange Commission (SEC) shows the effect of higher expenses on investment returns. They looked at the impact of expenses on a hypothetical $100,000 investment held for 20 years. The SEC assumed a 4.00% annual rate of return, with annual expenses at 0.25%, 0.50% and 1.00%.

Here is the impact of these expense differences on returns:

  • Over 20 years, incurring annual expenses of 0.50% reduced the end value of the portfolio by about $10,000 versus if the annual expenses had been 0.25%.
  • Over 20 years, the portfolio incurring 1.00% in annual expenses had an ending value that was $30,000 less than the same portfolio with 0.25% in annual expenses. According to the SEC’s analysis, this difference in expenses over the 20 years adds up to an additional $28,000 in expenses over this time period. If that money had been available for investment, the investor might have earned an additional $12,000 in returns over this time period.

As you can see, a relatively small difference in the level of expenses incurred by an investor can really add up over time.

There are numerous added costs that investors need to be aware of. These eight common fees and expenses can easily eat into your returns.

1. Expense ratios

Mutual funds and ETFs carry expense ratios that pay for expenses such as administration, trading costs to buy and sell securities held in the fund, and other costs to operate the fund. The expense ratio is calculated by dividing the total operating expenses of the fund by the fund’s total assets.

The returns that investors receive from mutual funds and ETFs are net of expenses. For example, if a fund’s gross return was 10% for the year and its expense ratio was 1%, your net return would be 9% for the period. This is a simplified example as things like your holding period for the fund, investments and distributions during the holding period, combined with the fact that mutual fund accounting is a bit complex all factor in.

What this means is that all things being equal, if you are looking at two funds in the same asset class, the fund with a lower expense ratio would start with an advantage. In the case of an actively managed fund, you will want to look at many other factors beyond expenses. In the case of an index fund, you will want to be sure to compare funds that track the same index such as the S&P 500 or the MSCI EAFE (EAFE stands for Europe, Africa and Far East) index.

2. 12b-1 fees

Some mutual funds carry a 12b-1 fee, which is lumped in as part of their expense ratio. This is considered a marketing fee and is used to compensate brokers, registered representatives or advisors for selling or recommending the fund. These fees are sometimes also used in a 401(k) plan to cover a portion of the plan’s administrative costs and/or to compensate the plan’s outside advisor.

The higher the 12b-1 fee, the higher the fund’s expense ratio will be.

3. Sales loads

A mutual fund load is essentially a sales commission tied to certain mutual funds. Mutual funds with a sales load are usually associated with stockbrokers or registered representatives who are compensated through commissions.

There are two types of loads.

Front-end loads

Front-end loads are a charge assessed at the time that the fund is purchased. They are typically associated with A-shares. The front-end load is deducted from the amount of your money that is ultimately invested in the mutual fund.

As an example, assume the initial investment in a fund is $10,000 and the front-end sales load is 5%. The amount of the sales load would be $500 and the amount invested in the mutual fund is $9,500.

The front-end load goes to compensate the brokerage or advisory firm selling the fund. You may pay these loads in addition to any other fees you are paying for advice. The load reduces the amount invested and ultimately the amount of money you accumulate over time from investing in the fund.

For example, $10,000 invested in a fund on January 1 that earns 10% for the year will grow in value to $11,000 by the end of the year. If only $9.500 was actually invested, the amount you’d have at the end of the year would be $10,450. This would multiply itself over time and the discrepancy in the value of your investment would grow over time.

Back-end loads

Back-end loads have been typically associated with B and C share class mutual funds. B shares have largely gone by the wayside in terms of new sales, but there are certainly some shares out there held by investors.

In the case of B shares, there was no upfront sales charge or load, but the back-end load serves as a surrender charge instead. This means that if you sell the shares prior to the elapse of a set time period, the net proceeds to you from the sale would be reduced by the amount of the back-end load. Typically, these back-end loads decrease over time and disappear altogether at the end of the surrender period.

As an example, if the back-end load was 3% when the shares were sold after holding them for four years, selling $20,000 worth of fund shares would only net you $19,400 after the back-end load was assessed.

C-shares use another form of the back-end load which becomes a level load over time. A typical C-share mutual fund will include a 1% back-end loan that works as follows:

  • There is a level load in the form of a 12b-1 fee, which is generally 1% on the fund. This is part of the expense ratio and typically never goes away as long as you hold the fund.
  • If you sell during the first year after investing, the 1% turns into a surrender charge that is assessed on the proceeds of the sale of the fund.

4. Surrender fees

Surrender fees may be assessed on some annuities and mutual funds. A surrender fee is a percentage of the proceeds if the investment product is sold within a certain period of time.
A surrender period may last for a number of years, with the surrender fee decreasing over time. The purpose of the surrender fee is to discourage investors from selling the annuity or the fund prior to the end of the surrender period.

If a surrender charge of 2% is in place at the time an investor sells shares of a variable annuity worth $30,000, then the proceeds of the sale will be reduced by $600 in this case. This is a direct reduction of the overall return on this investment.

5. Financial advice fees

Fees for financial advice will vary depending upon the type of financial advisor that you work with. There are three basic advice models. However you pay for financial advice, it is still a cost and one that you need to understand and manage.

Fee-only advisors

Fee-only advisors charge a fee for the advice they render. There are no commissions or sales of financial products. Fee-only advisors will typically charge in one of three ways:

  • Assets under management (AUM): Under this scenario, the advisory fee will be a percentage of the investment assets for which the advisor is providing advice. A typical fee might be 1% of assets. If you have $250,000 under advisement with the advisor, then your fee would be $2,500 annually. Typically, the fee would be charged based on the total assets under advisement at the end of each calendar quarter based on the annual percentage. In our 1% example, this would be 0.25% per quarter. Often advisors will scale their AUM fees to be lower for clients with higher levels of assets and vice versa for clients with smaller accounts.
  • Flat retainer fees: Some advisors will charge a flat fee that is not based upon an asset level. They may have different fee levels based on the complexity of your situation or other factors.
  • Hourly or project fees: Some fee-only financial planners and financial advisors provide advice on an as-needed or on a project basis. Their fee may be hourly or on a flat-fee basis for a specific project such as a financial plan or a review of your portfolio.

Commission-based advisors

Commission-based advisors are compensated through commissions from the sale of financial products. This might include sales loads from mutual funds or commissions from the sale of insurance products like annuities. These advisors must sell investment and financial products to get paid. Often the true cost of commissions is buried in the expense structure of the product being sold.

Commission-based advisors have the duty to propose suitable investments to their clients, this is a lower standard than acting in their client’s best interest. Therefore, a hidden cost might be that the product sold to you is not the best one for your situation.

Fee-based or fee-and-commission are both names for advisors who are compensated by a combination of fees and commissions from the sale of financial products. An advisor might produce a financial plan for you for a set fee, then implement their recommendations made in the plan through the sale of products that pay them commissions.

Fee-based and fee-only may sound alike, but they are decidedly different compensation methods and investors should understand how they differ. Fee-based has gained a level of popularity in recent years with the advent of the now ill-fated fiduciary rules.

6. Brokerage wrap fees

A brokerage wrap account is a managed account offered by brokerage firms. They will invest your assets in a fashion that is in line with your situation. The assets in the account are often mutual funds but could include ETFs or individual stocks as well.

Wrap accounts have gained in popularity during recent years as many brokerage firms have moved towards offering fee-based type products.

The wrap-fee is a management fee paid to the brokerage firm for managing the account. Wrap-fees can vary, but a typical range is 0.75% to 3% of the assets invested in the account. On top of that, the account may use mutual funds that pay a fee to the brokerage firm either through their 12b-1 fees or another method.

7. Transaction fees

Transaction fees are fees assessed for buying and selling investments. In addition to front-end loads and surrender charges discussed above, there are other types of transaction fees to be aware of.

  • There may be a cost to buy or sell shares of a mutual fund. This may be assessed at certain custodians for certain funds. For example, Vanguard charges $20 per trade for certain non-Vanguard funds if bought or sold online and $50 if bought or sold by phone.
  • There may also be a transaction fee to buy and sell exchange-traded vehicles such as ETFs or shares of individual stocks. For example, Fidelity offers $4.95 trades for many ETFs and stocks.

Note that transaction fees can vary widely from custodian to custodian, so it is wise to investigate. There are also a number of funds available on an NTF basis meaning there are no transaction costs to buy or sell.

8. 401(k) fees

In some cases, the fees and expenses associated with a company’s 401(k) plan might be assessed all or in part against the plan participant’s accounts. This could include costs for administration, recordkeeping and fees associated with an outside investment advisor for the plan. These costs do have to be disclosed, but make no mistake they are real, and they do reduce your returns within the plan.

Bottom Line

The fees and expenses discussed above are paid in a variety of ways, some not always transparent.

  • Advisory fees may be paid directly by check, they may be billed to your investment account and taken from the assets in the account or they may be paid from 12b-1 fees that are part of the mutual fund expenses.
  • Advisors may be compensated directly from the investments they sell or recommend to you using trailing commissions or other means.
  • Expense ratios directly reduce the net return you realize from investment vehicles like mutual funds, ETFs and variable annuities.

It is important that if you are working with a financial advisor or a broker that you fully understand ALL costs related to working with them and how they will be compensated for the advice they provide.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Roger Wohlner
Roger Wohlner |

Roger Wohlner is a writer at MagnifyMoney. You can email Roger here

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J.P. Morgan You Invest Review 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Chances are you’ve heard of J.P. Morgan Chase. It’s one of the major players in the financial space, and it’s long had a brokerage arm in addition to providing global banking services. Now, though, J.P. Morgan is getting into the online brokerage space with You Invest.

You Invest is an online trading platform that allows you to buy and sell individual stocks and exchange-traded funds (ETFs) without the need for a human broker. This review will look at what’s offered and provide you with the information you need to decide if it’s right for you.

You Invest offers a way for you to seamlessly connect your Chase bank account to your brokerage account. Additionally, you end up with access to plenty of educational materials and the ability to understand your total portfolio.

J.P. Morgan You Invest
Visit J.P. MorganSecuredon J.P. Morgan You Invest’s secure site
The bottom line: You Invest offers a fairly standard online brokerage experience with the perks of low-cost trading fees and a wealth of investor education.

  • Pay just $2.95 per trade after receiving 100 free trades.
  • Enjoy a large selection of investments, including stocks, bonds, mutual funds and ETFs.
  • Manage investments according to goals with the Portfolio Builder tool.

Who should consider You Invest

You Invest is ideal for beginning investors, especially those looking for education and assistance building a portfolio that will help them reach their goals. Intermediate and advanced investors also can benefit, but the educational tools and resources are especially helpful for novice investors.

Additionally, it connects to your other Chase accounts, making it easy for you to move money from your bank account to your brokerage account and vice versa. If you already bank with Chase, using You Invest to manage your portfolio might not be a bad choice.

While $2.95 per trade is a low cost, this product might not be the best choice for active traders. For traders who can keep their trade volume low, this can be an excellent brokerage since you receive 100 free trades in the first year after an account is opened — with the opportunity to qualify for more free trades in subsequent years.

J.P. Morgan You Invest fees and features

Current promotions

Up to 100 free trades

Stock trading fees
  • $2.95 per trade
  • $0 per trade for Chase Private Client, Chase Sapphire Banking, J.P. Morgan Private Bank and J.P. Morgan Securities clients
Amount minimum to open account
  • $0
Tradable securities
  • Stocks
  • ETFs
  • Mutual funds
  • Bonds
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $75 full account transfer fee
  • $75 partial account transfer fee
  • $0 inactivity fee
Commission-free ETFs offered
Offers automated portfolio/robo-advisor
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
Ease of use
Mobile appiOS, Android
Customer supportPhone, Chat, 5,100 branch locations
Research resources
  • SEC filings
  • Mutual fund reports
  • Earnings press releases
  • Earnings call recordings

Strengths of You Invest

The educational tools and insights provided by You Invest are where this offering shines. They help you find the right mutual funds and stocks, and get you to understand your investing needs.

  • Low trading fees: To start, you get 100 free trades from You Invest. After you use your allotment, trades cost only $2.95. Among online brokers that charge trading fees, this is one of the lowest. If you’re not an active trader, you might be able to avoid paying fees fairly easily. You can get more free trades each year if you use certain Chase banking products, such as Premier Plus Checking.
  • Educational resources: You Invest offers a number of helpful articles about investing, strategy and more. It’s possible for you to learn the basics and then apply them to your portfolio.
  • Portfolio Builder: If you have at least $2,500 in your account, you can take advantage of this tool designed to help you choose the right investments for your portfolio. You’ll receive guidance on putting together a portfolio based on your answers to questions designed to gauge your risk tolerance, investment goals and time horizon.
  • Powerful screening tools: You can use these tools to set parameters and then find assets that fit your requirements. A list of options appears, and when you’re looking at Mutual funds , You Invest also includes Morningstar ratings and analysis of where they might fit into your portfolio.

Drawbacks of You Invest

A review of You Invest wouldn’t be complete without a look at some of the downsides. In many ways, You Invest is a typical online brokerage option. Other than some of the educational and portfolio building tools, there’s not a lot to distinguish this from other brokers.

  • No standalone app: Rather than offering a standalone app, you access You Invest through J.P. Morgan Mobile. Until you get used to it, it can be somewhat disconcerting to navigate to your trading app within the regular app.
  • Limited account types: There are only two account options with You Invest: taxable and IRA. You can get a Joint taxable account as well as an individual account, and there is a Roth option with the IRA. However, if you’re hoping for a custodial account or 529, you won’t find it with You Invest.
  • No managed portfolios: Right now, you won’t find managed portfolios, but they are supposed to be coming in 2019. So if you’re more of a hands-off investor, you might want to wait until there are more options available.
$2.95 per trade

Per Trade Stock Trading Fee

Account Minimum

Up to 100 free trades

$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum

Get up to $600 when you open and fund an account within 60 calendar days of account opening, depending on deposited amount.

$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum

Cash bonuses are available for new accounts. Bonuses start at $50 if you deposit or transfer $10,000+.

Is You Invest safe?

Any investment comes with the risk of loss. However, You Invest is insured by the SIPC for up to $500,000. Additionally, J.P. Morgan is a member of FINRA. As a result, you’re reasonably protected — especially when you consider that this is a company with more than $1 trillion in assets under management. It’s not likely to fail.

Just make sure you understand your own risk tolerance before you invest. While insurance protects you from failure, you’re not protected from market losses.

Final thoughts

You Invest can be a great option for middle-of-the-road investors who want a little more flexibility in their portfolios but still need some guidance. There are a number of assets to choose from, and the educational tools and resources allow you to build a portfolio based on your long-term goals and expectations.

Depending on your goals, there might be other products that work for you. For those more interested in a hands-off approach, Betterment might be a more suitable choice. You also can make trades for less with a service like Robinhood. However, you might not get the same level of educational tools with Robinhood, and Betterment won’t let you personalize your portfolio to the same degree.

If you want a low-cost, personalized way to invest — learning as you go — and if you’re already a Chase customer, opening a You Invest account might be a good way to move forward.

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on J.P. Morgan You Invest’s secure website

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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How to Make Money in Stocks

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Putting money in the market is well-worn financial advice for a reason: Investing in stocks is one of the best steps you can take toward building wealth.But how, exactly, is that wealth built? How is money earned by purchasing stock market holdings, and what can you do to maximize the gains you make from your own portfolio?

How to make money in stocks: 5 best practices

The way the stock market works — and works for you — is as simple as a high school economics class. It’s all about supply and demand, and the way those factors affect value.

Investors purchase market assets like stocks (shares of companies), which increase in value when the company does well. As the company in question makes financial progress, more investors want a piece of the action, and they’re willing to pay more for an individual share.

That means that the share you paid for has now increased in price, thanks to higher demand — which in turn means you can earn something when it comes time to sell it. (Of course, it’s also possible for stocks and other market holdings to decrease in value, which is why there’s no such thing as a risk-free investment.)

Along with the profit you can make by selling stocks, you can also earn shareholder dividends, or portions of the company’s earnings. Cash dividends are usually paid on a quarterly basis, but you might also earn dividends in the form of additional shares of stock.

Micro-mechanics of how stocks earn money aside, you likely won’t see serious growth without heeding some basic market principles and best practices. Here’s how to ensure your portfolio will do as much work for you as possible.

1. Take advantage of time

Although it’s possible to make money on the stock market in the short term, the real earning potential comes from the compound interest you earn on long-term holdings. As your assets increase in value, the total amount of money in your account grows, making room for even more capital gains. That’s how stock market earnings increase over time exponentially.

But in order to best take advantage of that exponential growth, you need to start building your portfolio as early as possible. Ideally, you’ll want to start investing as soon as you’re earning an income — perhaps by taking advantage of a company-sponsored 401(k) plan.

To see exactly how much time can affect your nest egg, let’s look at an example. Say you stashed $1,000 in your retirement account at age 20, with plans to hang up your working hat at age 70. Even if you put nothing else into the account, you’d have over $18,000 to look forward to after 50 years of growth, assuming a relatively modest 6% interest rate. But if you waited until you were 60 to make that initial deposit, you’d earn less than $800 through compound interest — which is why it’s so much harder to save for retirement if you don’t start early. Plus, all that extra cash comes at no additional effort on your part. It just requires time — so go ahead and get started!

2. Continue to invest regularly

Time is an important component of your overall portfolio growth. But even decades of compounding returns can only do so much if you don’t continue to save.

Let’s go back to our retirement example above. Only this time, instead of making a $1,000 deposit and forgetting about it, let’s say you contributed $1,000 a year — which comes out to less than $20 per week.

If you started making those annual contributions at age 20, you’d have saved about $325,000 by the time you celebrated your 70th birthday. Even if you waited until 60 to start saving, you’d wind up with about $15,000 — a far cry from the measly $1,800 you’d take out if you only made the initial deposit.

Making regular contributions doesn’t have to take much effort; you can easily automate the process through your 401(k) or brokerage account, depositing a set amount each week or pay period.

$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum

500 free trades with a qualifying net deposit of $100,000

$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum

Get up to $600 when you open and fund an account within 60 calendar days of account opening, depending on deposited amount.

$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
New accounts with a deposit of at least $5,000, may be eligible for a cash bonus, which can range from $100 to $2,500 depending on the amount deposited.

3. Set it and forget it — mostly

If you’re looking to see healthy returns on your stock market investments, just remember — you’re playing the long game.

For one thing, short-term trading lacks the tax benefits you can glean from holding onto your investments for longer. If you sell a stock before owning it for a full year, you’ll pay a higher tax rate than you would on long-term capital gains — that is, stocks you’ve held for more than a year.

While there are certain situations that do call for taking a look at your holdings, for the most part, even serious market dips reverse themselves in time. In fact, these bearish blips are regular, expected events, according to Malik S. Lee, CFP® and founder of Atlanta-based Felton & Peel Wealth Management.

So-called market corrections are healthy, he said. “It shows that the market is alive and well.” And even taking major recessions into account, the market’s performance has had an overall upward trend over the past hundred years.

4. Maintain a diverse portfolio

All investing carries risk; it’s possible for some of the companies you invest in to underperform or even fold entirely. But if you diversify your portfolio, you’ll be safeguarded against losing all of your assets when investments don’t go as planned.

By ensuring you’re invested in many different types of securities, you’ll be better prepared to weather stock market corrections. It’s unlikely that all industries and companies will suffer equally or succeed at the same level, so you can hedge your bets by buying some of everything.

5. Consider hiring professional help

Although the internet makes it relatively easy to create a well-researched DIY stock portfolio, if you’re still hesitant to put your money in the market, hiring an investment advisor can help. Even though the use of a professional can’t mitigate all risk of losses, you might feel more comfortable knowing you have an expert in your corner.

How the stock market can grow your wealth

Given the right combination of time, contribution regularity and a little bit of luck, the stock market has the potential to turn even a modest savings into an appreciable nest egg.

Ready to get started investing for yourself? Check out the following MagnifyMoney articles:

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here