Beginner Investing - Commissions And Fees

Beginner Investing – Commissions And Fees

Just the other day I was reading a comment that a reader left and his words brought the memory of an experience that I had several years ago. Here at beginner investing, these are the types of lessons I want to share with people who are thinking of, or have just started investing on their own.

When I left one job to go work for another, I had to wait a certain time until I could enroll into their 401K plan. The company only had 21 employees and one third of them had started within the past year. Since the company was small, it had been using a local financial broker in the city and a representative come down to the office to talk with all of us.

He spoke to each of us to see how he would best invest for our individual needs. I told him that I since I still had over twenty years before I would retire and was thinking of investing more on the aggressive side. On the forms that were in front of us, there were well over a hundred and fifty different ETFs, mutual funds and bonds, but nothing towards individual stocks. He told me his suggestions and at the time I wasn’t has informed as I am now, so I took his advice and agreed.

I received a quarterly report from them about nine months later and noticed that there wasn’t much growth in the portfolio. I ask some of the other employees how they were doing with their investments. Out of the five of us that discussed our investments, none of us were the same age, marriage status, or had the same amount of dependents. The odd thing was that roughly 60% of each of the portfolios were invested in the same funds. We realized that these funds that we were invested in, were high commission earners for the “salesman”. These funds were also the laggers in the portfolios.

I tried to reach the representative who handled my account to get answers, but it was next to impossible to get to speak to him. I spoke to the owner of the company I worked for to see if he could make contact to get some answers, but it never happened.

I left the company about three months later and decided to move my money out shortly after leaving. They informed me that I shouldn’t be looking to take the money out, “I would do better if I’d just leave it in there”. I received my annual statement from the firm and noticed that my account had increased by less 5% overall.

I decided to get my money out and put it in an IRA with one of the online discount broker. They had me jumping through hoops with all the forms and procedures that it took almost two months to finally get transferred. They told me that there would be early withdrawal frees and penalties. At that point I didn’t care, I just wanted it out of their hands. If it wasn’t for the online discount broker going straight after the firm directly on my behalf, who knows how long it would have taken.

After the firm took out its management fees and costs as well as the penalties for removing my money, I had only a 2% gain for the time that I was invested in the plan. The firm was able to take over three percent of the profits for themselves.

When someone else is handling your investments, you need to know what you’re being charged for otherwise you might lose a good portion of you retirement fund to costs. You might think of it as only 1% of your portfolio each year, but consider how much that first year of capitol would be twenty years later, it adds up once you factor in compounded interest on the principal from those earlier years of investing.

Be aware of what you’re paying for, it could mean the difference in when you can retire.

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