I remember when I started investing around 1996 or so. At the time I believe you could pay around $40 in commissions for a transaction with companies like Fidelity. But online brokers were coming into the game to change things forever.
If memory serves me right, my first transactions had transaction fees around $19.95 per transaction. This was with one of the first online brokers, E*Trade.
Over the years, competition drove commission fees downward. I remember investing fees dropped to $14.95 then $9.95. A lot of brokers now will let you buy for around $7.95 per trade. That’s a hell of a lot better than the $40 commission rates from the ’90s. There’s just one problem. It’s STILL too high!
You shouldn’t pay ANYTHING in commissions in 2019!
In 2019, we’ve arrived at the point where you can buy stocks without having to pay anything in commissions when you buy or sell. You can buy and sell stocks in a “pie” when you use M1 Finance.
Sign up to M1 Finance and you can create an investment “pie” like I did which include some Vanguard exchange-traded funds.
Investment fees may not seem like a big deal, but over time they really start to add up. They compound along with your investment returns. You don’t just lose the tiny amount of fees you pay—you also lose all the growth that money might have had for years into the future. As such, you miss out out on the exponential compounding of investing.
Imagine you have $100,000 invested. (cha-ching!) If your investments earned 6% a year for the next 25 years and had no costs or fees, you’d end up with around $430,000.
If, instead, you paid 2% a year in costs, after 25 years you’d only have about $260,000.
Hard to believe but it’s true: The 2% you paid every year would wipe out almost 40% of your final account value. 2% doesn’t sound so small anymore, does it?
So you can see why it’s so important to avoid paying commissions and also any management fees that other robo-advisors might charge.
I’m a big fan of M1 Finance and signed up to be an affiliate. I may receive a commission on some signups generated from clicking a link to sign up for M1 Finance.