How Fees and Expenses Impact Your Investment Portfolio

How Fees and Expenses Impact Your Investment Portfolio

When making investments, fees are an inevitable part of it. However, that doesn’t mean that you have to overpay. Over time, those without a sharp eye will have a reduction in returns with fees in the way. So, here’s a detailed look at investment portfolios and how fees and expenses can dramatically impact yours.

How an Investment Portfolio Works

An investment portfolio is a basket of asset classes that include cash, stocks, bonds, real estate, etc. Investors often aim for return through diversification to reflect their risk tolerance and financial goals. There are many different investment portfolio types, as some exist through a brokerage or financial advisory firm, while some are built into 401k, annuities, and IRAs.

There are two categories for portfolio investment: strategic and tactical. The strategic investment route involves purchasing financial assets for long-term growth potential, yield income, or both. The intention for strategic investment is to have a long-term hold on assets. On the other hand, the tactical approach requires active buying and selling to achieve short-term gains.

Types of Investments

Many types of investment methods can improve investment portfolios. Some variations include stocks, bonds, property, exchange-traded funds, and more. Stocks and bonds represent ownership or shares in the company and allow you to lend money to companies, governments, and other types of organized money with returned interest.

As previously mentioned, property ownership is another investment method that can improve investment portfolios. More specifically, qualifying for 1031 exchanges can allow for tax deferrals and free more capital for property investment. This applies to raw land or farmland for improved real estate, residential, commercial, industrial, or retail rental properties.

Determining Asset Allocation

Getting familiar with asset allocation can help break down an investment portfolio by asset class percentage. There are different security categories, including exchange-traded funds (EFTs), mutual funds, bond funds, real estate investment trusts (REITs), and annuities.

Asset allocation attempts to plan your return in a specific manner. Therefore, diversification is crucial, as asset allocation adheres to your particular comfort level with investment risk and the various fees or expenses you potentially pay for.

Understanding Fees and Expenses

Now that you have a solid understanding of investment portfolios, we can move on to the associated fees and expenses. With anything you buy, fees and expenses come with it, especially with building an investment portfolio. While fees seem small, they can significantly impact your portfolio over time. You can familiarize yourself with hidden fees by reading what your financial professional provides you in documents, confirmations, account statements, and other product-specific documents.

There are two typical fees to become familiar with: transactional fees and ongoing fees. While transactional fees occur each time you enter a transaction, ongoing fees and expenses focus on charges you regularly incur, including maintenance fees.

What To Do If Fees Are Too High

If you notice an increase in fees or notice fees that have high rates, there are a few methods to decrease them or remove them entirely. First, follow up, ask questions, and negotiate with your financial professional regarding fee reduction. Furthermore, before investing, research your options and review investing service costs.

Written by Dianne Pajo

Dianne Pajo is a writer based out of the Chicagoland area with a passion for music, combat sports, and animals. She enjoys competing in amateur boxing and kickboxing, but in her other leisure time, you can find her performing music around the city. She is also a dog mom of 2.


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