Investing in the stock market can be a very lucrative enterprise, especially if you know the rules of the game. In the world of personal finances, keep in mind that there is no such thing as a free lunch. For instance, aside from the money needed to invest in an asset, there are also additional costs.
This article explains the costs of investing in the stock market. Prospective investors need to pay close attention since this is very important, especially if the amount in your investment fund is limited. These additional costs can really affect your investment money if you are not careful.
Mutual Fund Fees
Mutual Funds offer a number of advantages for beginners. They are also more cost-efficient. This is because regardless of the amount you invest, the fees remain the same. You just need the pay the minimum amount in order to open an account, then you can proceed and invest smaller amounts in the following months. This system is called dollar cost averaging (DCA).
Of course, we would be remiss if we did not tell you about the management expense ratio (MER) for mutual funds. Basically, this is charged annually by the management team. The amount is determined depending on the fund assets.
Right from the start, before you even open that investment account, investors need to bear in mind the costs you will inevitably incur every time you purchase investments once that account is activated. So, every time you purchase an investment, be ready for additional costs. Oftentimes, these come in the form of commissions.
If you trade constantly then Investing in stocks can be surely become quite costly. This is because of the trading fee incurred every time you trade stock. This applies to both buying and selling of stocks. It can cost $10 to $30 per trade. Investors with smaller investments will surely feel the effects of these costs more than those with larger amounts at play.
In order to illustrate this point, imagine that you have $1000 to invest. If you buy stocks from five different companies, then you will automatically incur at least $50 in trading costs. It may not seem like much but that is already 5% of your total investment money. This is already a 5% loss on your investment before you have the chance to earn money.
Now, in the event that you decide to sell these stocks, you will also be charged another $50 to make that trade. So, the simple acts of buying and selling these stocks can already cost you $100, or 10% of your initial deposit. In such a scenario, you could already lose money. More so, if your investments did not pay off.
Investing costs money. Every step of the way, you need to be ready to pay the extra fees. These can easily deplete your funds if you are not careful.
This article presented some of the basic costs entailed by stock market investments. Keep these things in mind if you are truly serious about pursuing that investment opportunity.