One key to investment returns is actually the cost of your investments. If you can keep your costs down, you can keep large parts of your earnings from losing out to expenses. Here are the top 3 low cost investments to keep your costs down, and your returns up.
Low Cost ETFs (Electronically Traded Funds)
ETFs or Electronically Traded Funds) can be a great low cost alternative. Many brokerage companies are offering commission free trades on their in-house ETFs. I personally use Charles Schwab, but Vanguard does this also. So not only do you not pay to buy and sell them (which is awesome) they also have low expense ratios. My lowest ratio is 0.06% and the highest is 0.14%. Better than paying 1% to 2% to someone to manage your portfolio whether it wins or loses.
First you want to determine if the fund is no-load or load. Basically, are there commissions for buying and selling. Load funds typically charge a upfront charge (usually higher) or a back-end. Either no-load and load funds may also charge fees called 12b-1. Which are to pay promotional fees. So a load funds can have fees ranging from 3% to 5% plus 0.5% per year. That means given the same asset class, the fund manager of a load fund needs to be able to beat the manager of a no-load fund by at least 3.5%. So you’ll want to review the prospectuses and histories very carefully. Again, remember the goal is to keep costs low. I think in most cases a no-load fund is best for the majority of people.
Certificates of Deposit (CDs)
You can actually do CDs for no cost and 0% expense rations. But you may want to look up some sites such as online-cd-rates.blogspot.com to find the best rates. I would also check with your brokerage account. Sometimes they have better rates. For instance, lately, many brokered CDs have been offering rates higher than direct CDs on 2-year to 5-year CDs. Of course, although you aren’t paying for them, brokered CDs to compensate the sales agents by marking-down a portion of the rate. So if you buy a 3-year at 1.35%, the real rate may be a 1.55% to 1.60%.
You should also pay attention to the penalties of your CDs. Brokered CDs don’t have stated penalties. You could have a gain or loss depending on the market conditions at the time. For instance if you bought your CD paying 1.30% and rates are now higher, you will have to sell your CD at a loss to make up the difference. For direct CDs, banks usually have stated penalty like 3-months of lost interest all the way up to all of the interest. So read the disclosures.
I hope this post has been helpful.