Although investing can be done online – where a lot of things can be taken for free – there are certain fees involved. Put simply, investing has a lot to do with money. It basically deals with money. But the good thing is that you don’t need to have millions in order to start investing.
Then again, one of the keys to enjoying the investment process is knowing certain things beforehand, and one of them obviously has something to do with money. In this case, what are the fees to know about before investing in stocks?
Minimum Deposit Requirement
The first thing you need to do when beginning to invest is to sign up with a brokerage firm. While this can be done online, the process is not free of charge. In fact, there are certain kinds of financial requirements too.
All financial institutions have what’s called a minimum deposit requirement. In short, a brokerage firm will not accept your application unless you can deposit a certain amount of money. In fact, some firms won’t even accept $1,000 as starting money. The good news is that there are certain firms that do.
Full-service or Discount Broker
There are two kinds of stock brokers: full-service and discount. The former provides a variety of services, but in most cases, only deals with clients with a high net worth. In other words, you can see $50,000 as a minimum account size at full-service brokerages.
In other words, if $1,000 is all you have, your best bet of securing a broker is to go with a discount broker. A discount broker doesn’t request such high fees because of the simple fact that you make decisions on your own. With a full-service broker, you get the benefit of their advice. In short, you’re left to your own devices with a discount broker.
Some discount brokers accept a minimum of $1,000 as their deposit requirement. However, this doesn’t mean that you’re sure to get in as well. You still have to shop around for a broker that will actually take you in.
When you purchase investments, you incur costs (through commissions). You have to pay a trading fee each time you trade stock, whether you buy or sell. The fee can be as low as $10 but can also be as high as $30. Keep in mind that a trade is an order to buy shares in one company. In case you want to buy three different stocks at the same time, these represent three separate trades where you will be charged for each one.
Mutual Fund Fees
Mutual funds refer to a collection of investments. Most often, they are a collection of various stocks, but can also include bonds, precious metals, foreign currency and real estate, among others. These investment vehicles come with fees called an “expense ratio” which refers to the value of the fund that is used up each year in order to employ those running the fund, and of course to earn them profit.
Also called management expense ratio or MER, the expense ratio is put simply, the amount that you’re charged by the management team per year based on the number of assets in the fund. So the bigger the MER, the worse for the investors of the fund.
Investing in stocks requires money, but you can also be comforted by the fact that you don’t need millions in order to begin trading. Knowing the different kinds of fees involved when trading stocks makes you better acquainted with the system and as such, helps you become a better trader as you continue along.