Last week, I was writing about what would be the next big thing on the market. I was referring to fee management and tax optimization. Markets will remain markets; sometimes they go up, sometimes they go down. However, if you can control your fees and pay fewer taxes, you will definitely be on board for a better yield. So here are some tips to decrease your management fees in your investment portfolio:
Use a bond ladder
Several people are paying fees to portfolio manager to trade bonds and other type of fixed income. In a world where fixed income are giving a 4 to 5% return, paying 1% in fees represent 20 to 25% of your yield. On top of that, you don’t get any guarantee of your return as you don’t hold the bonds yourself. By doing a bond ladder, you will save all management fees and roughly make the same return. If you want to know how bond ladder works, please read my article about how to make a bond ladder.
Consolidate your investment
By consolidating your investment with one institution / broker / advisor, they will surely be able to offer you a better management fee. Some product works with a decreasing fee structure while other charge less MERs but require a minimum investment (i.e. 10K, 50K, 100K to go into the product). This is an easy way to benefit from the best rate in the market.
Look at the ETFs option
If you have a good knowledge of the market or you prefer to deal with a broker, you could try trading ETFs. While they will show bigger fluctuation as they follow indexes, their MERs are very low. If you want a balance portfolio, there is nothing stopping you doing a bond ladder and trading ETFs on the market.
Negotiate with a broker
Brokers are working different ways. Some of them are charging commissions on trade other will charge a fix percentage of your asset as management fees. Talk to a few of them and find out what is the best commission structure according to your needs and trading style. You will definitely save money with the right commission structure.
Don’t duplicate your investments
Many people have investment here and there and they hold the same kind of fund at both places. Many times I saw people having emerging market funds at two different institutions. It is obvious than one of them had higher MERs fees than the others. He could only hold 1 emerging market mutual funds in his portfolio and benefit from the best fees.
Reduce the amount of trades
If you have a brokerage account, you should definitely consider trading less or switching to the lower commission charged account. There is a lot of competition in this market lately and you can surely find a bargain somewhere.
I hope those tricks will help you out diminishing your management fees! 1% saved, is 1% added to your investment returns!
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