Money Management

It’s important to keep your investing fees as low as possible. Read on to see why. 

The investments you add to your brokerage account should serve a purpose — to help you grow wealth over time. That’s why it’s important to choose your investments wisely and ideally, diversify your holdings.

For some people, the idea of having to hand-pick stocks can be daunting. So if you’re someone who would rather outsource that task (perhaps to people who know more about investing than you do), then you may be inclined to load your portfolio with mutual funds.

If you choose the right mutual funds, they might generate a really nice return for you over time. But you might end up losing a lot of money by investing in mutual funds — even if your specific investments perform well.

Be mindful of investment fees

Mutual funds employ fund managers who are tasked with assembling portfolios and creating investment strategies that people like you can put money into. Because you’re benefiting from the expertise of these professionals, you’re typically charged a fee when you invest in mutual funds.

Now, that fee can vary from fund to fund. But generally speaking, the investment fees charged by mutual funds tend to be high. And over time, they have the potential to seriously eat away at your returns. If you want to keep your investment fees to a minimum, a good bet is to look at ETFs, or exchange-traded funds, instead.

When you buy ETFs, what you’re effectively doing is buying shares of a collection of stocks or assets. But ETFs differ from mutual funds in a few ways. First, they trade publicly, and you can buy or sell shares during trading hours as you please. With mutual funds, you can only buy or sell once a day, after the market closes.

Secondly, mutual funds often have a minimum investment requirement, whereas ETFs don’t. In fact, you can often buy shares of ETFs on a fractional basis if your brokerage account allows that. This means that if a given ETF is trading for $240 a share and you only have $80 to invest with, you could buy one-third of a share of that ETF rather than having to wait until you have the money to purchase a whole share.

What’s more, because ETFs are passively managed and are pegged to the performance of different indexes, you’re usually not looking at the same high fees that mutual funds charge. So over a long period of time, the savings there could be huge.

Of course, the one drawback there is that if you buy shares of an ETF and the index it’s tied to underperforms, so too might your portfolio. But there’s no guarantee that a given mutual fund will perform well, either. So why pay such high fees when there’s no guarantee?

Kiplinger cites a Morningstar report that the average fee, or expense ratio, for mutual funds was 0.66% in 2019. By contrast, the average fee for ETFs was 0.09%, according to ETF.com. That means sticking to mutual funds could mean facing fees seven times as high.

Consider your options carefully

Mutual funds can be a rewarding investment for many people. But before you settle on a mutual fund-focused strategy, consider putting money into ETFs. You may find that you benefit from the same solid performance, only your fees are much less significant.

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Many people use credit cards for everyday purchases. Read on to learn how credit card issuers turn a profit. 

Many people use credit cards to pay for everyday purchases and earn rewards. If you’ve received a lucrative welcome bonus or have earned credit card rewards, you may wonder how credit card companies can continue to offer incentives like this while also making a profit. Credit card companies make money by charging fees to consumers and merchants.

How credit card companies make money from fees

Like any for-profit business, credit card companies are out to make money. You may be charged fees when you use credit cards. One fee that some credit cards impose is an annual fee. Cardholders agree to pay a yearly fee in exchange for using the card and its benefits.

It’s worth noting that not all credit cards have annual fees. Credit cards with no annual fees tend to have fewer benefits than cards that do. If you’re looking for a new card and want to pay minimal extra fees, check out our list of the best no annual fee credit cards.

Credit card companies charge consumers other fees besides just an annual one. If you pay your credit card bill late, you’ll pay a late fee. You’ll be charged a cash advance fee if you use your credit card to withdraw cash from an ATM instead of using a debit card to get cash.

If you use your credit card to make international purchases, you’ll be charged foreign transaction fees — unless you use a credit card with no foreign transaction fees. All of these fees add up and impact the wallets of consumers, while making credit card companies richer.

Interest is a big money maker for credit card companies

A big money-maker for credit card companies is interest. When you don’t pay your credit card balance in full, your credit card issuer charges interest. These fees can add up fast. If a cardholder continues to carry a balance, credit card interest accumulates and the debt grows.

Credit card debt is a common struggle for many consumers, and it can negatively impact their personal finances. The average American had $5,221 in outstanding credit card debt in the third quarter of 2021. The good news is you can make strategic decisions to avoid it. Paying your balance off every month is the best move to make if you want to avoid expensive credit card debt.

Merchants also pay up for credit processing fees

Credit card companies also make money by charging merchants fees. Interchange, assessment, and processor fees are fees paid by merchants when you swipe your credit card for a purchase and the payment is processed. These fees go to the credit card issuers and the credit card networks, the companies that process payments.

Research fees and consider your habits

Before applying for a new credit card, make sure you review all of the card details. Ensure you understand what benefits are included and what fees may be charged to avoid surprises.

You should also consider your everyday credit card habits and determine if you need to make changes. Paying your bills on time and never carrying a balance are new habits you can develop to save money. If you’re ready to find your next card, check out our list of the best credit cards.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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A good real estate agent can help you get more money for your home. Keep reading for Dave Ramsey–approved questions to find the right agent for you. 

Both buying a home and selling a property are major financial transactions. Many people hire a real estate agent to help them through it so they can maximize the chances of a successful purchase or sale. Of course, this means that the agent must be paid commission, which comes directly out of your home sale proceeds or your bank account if you’re a seller.

To help you make sure you have the right agent before you sell your home or get a mortgage loan for one you’re buying, finance expert Dave Ramsey recommends asking a few questions first.

1. How long have they worked in your market, and how many homes do they close annually?

Ramsey believes it’s important to find out both how long your agent has worked locally and how many homes they close each year. This can give you an idea of their level of experience and familiarity with the local market.

Here’s the reality: Your real estate agent is going to have to do a lot of tasks to help you get your home sold. This includes marketing it to an appropriate buyer pool, helping you set your price, and providing you with advice on staging. And, to do these tasks effectively, your agent needs to know a lot about the market in your area.

If your house isn’t priced right, you could end up having to lower the price, which can make you look desperate and lead to lower offers — and which leaves you waiting longer to sell and missing out on the new home buzz. If your agent gives bad advice about staging or improvements, you could waste money on unnecessary upgrades or miss out on potential buyers because your home can’t compete with others in your area.

For all of these reasons, Ramsey is right that you should find out how familiar an agent is with your market.

But, when it comes to how many homes they close, there are a lot of variables that matter. If your agent primarily works on high-priced homes, for example, they may close fewer properties than agents who work with starter homes. After all, they’re working with a more specialized market. So be sure to look at this number in context and consider whether your agent’s experience will benefit you as a buyer or seller.

2. Who will you actually be dealing with throughout the process, and how will they communicate?

Ramsey explained many agents have teams working for them, so you should find out if you’ll have direct communication and with whom.

In addition to asking about this issue, you should also consider the method of communication and make sure it meshes well with your needs. If you like to be able to jump on the phone to get questions answered, you may not be happy with an agent who only responds by text or email. Or, if the reverse is true, you may be annoyed by agent phone calls.

Finally, think about whether your agent’s communication style works for you. If you’re a new buyer, for example, you’ll want to make certain you can get questions answered in terms you understand and that your agent is willing to walk you through the process.

3. What sets them apart from other agents?

Ramsey suggests looking at certifications and credentials to see if your agent stands apart from competitors. But credentials aren’t really what sells a home. Instead, it’s an agent’s creative ideas, market knowledge, and ability to work with people and get deals done.

If you really want to see if a particular agent will be a good salesperson for your property, consider visiting them when they’re hosting an open house and asking questions about the home. See if they’re knowledgeable and can present the house in its best light. This is how we have found all of our real estate agents for past transactions. Their personality can be far more important than if they’ve managed to pass a bunch of certification tests.

4. What do they charge?

You need to know how real estate commissions work and what you’ll pay, which is why Ramsey said to address this issue. This is more important for sellers, though. Buyers don’t usually have much of a say in what they’ll pay to their agent, since the amount their agent gets is based on commission a seller is offering.

The standard is that sellers pay 6.00% commission split between the buyer’s and seller’s agent. So if you sell a home valued at $400,000 and pay the standard rate, you’d owe $24,000 in commission. Obviously, with such big numbers, if you are selling a home, you should find out if this will be the case.

There are a number of discount agents out there who will accept less — and you may want to find one if you don’t want to pay a huge sum to an agent. Even just a small discount — say, paying just 2.5% instead of 3.00% to the seller’s and buyer’s agents — could save you a lot. In this example, your commission fees would be just $20,000 on a $400,000 house instead of $24,000, leaving you with $4,000 extra in your pocket.

5. What references do they have?

Finally, Ramsey recommends asking for references from homeowners who have worked with your agent in the past. And while this can make sense, most people aren’t going to give you a reference from someone who they did a bad job for. Instead, you may be better off looking at online reviews of the agent, which are more likely to be unbiased.

Ultimately, you should make sure you do your research to find a real estate agent you’re comfortable with. You can ask all these questions at an interview, but seeing how agents work in person at an open house could be a better insight into whether you’ll have a positive experience with them.

Since your agent is going to play a vital role in one of the biggest transactions of your life, it’s worth taking the time to find the right one.

Our picks for the best credit cards

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Credit cards are a convenient payment tool. In addition to earning rewards, some cards have many benefits. Find out what perks you may be missing out on. 

Credit cards are convenient. You can use them to pay for purchases when you don’t have cash available, and when used carefully, they may help you increase your credit score. But some other unexpected benefits can come from using credit cards. You may want to explore these potential benefits if you’re not yet using credit cards to pay for everyday purchases.

1. Sign-up bonuses

Some card issuers market attractive sign-up bonus offers to new cardholders to attract customers. If you apply for a new credit card with such an offer and meet the eligible minimum spend requirement, you can earn bonus points, miles, or cash back. These offers are an excellent way to earn rewards faster so you can get closer to your redemption goals.

2. Valuable statement credits

Another possible unexpected benefit of using credit cards is the ability to earn valuable statement credits. Some of the best rewards credit cards include statement credits that could help you keep more money in your pocket. Examples of such statement credits include travel credits for eligible travel purchases and food delivery app credits.

3. Cellphone protection

Some credit cards include cellphone protection, which can be valuable if your phone is lost, stolen, or damaged unexpectedly and you need repairs or a replacement. This overlooked cellphone perk once saved me over $300. Most cards that offer this perk require you to pay a deductible when making a claim. You’ll also likely be required to pay your cellphone service bill with an eligible card to qualify. This perk could help you out of a difficult and expensive situation.

4. Free two-day shipping from qualifying retailers

Many American Express credit cards are eligible for free two-day shipping through ShopRunner. Terms apply and enrollment may be required. If your credit card includes a complimentary ShopRunner membership, you can get free two-day shipping and free returns from qualifying retailers. For those who shop online often, this could be a valuable perk that saves money. At the time of writing, there are nearly 100 stores that are part of the ShopRunner program.

5. Free checked bag perks

Many popular airlines charge a fee for every checked bag you bring when you fly domestically. What you’ll pay can vary by destination and airline, but you can expect to pay at least $30 for your first checked bag for each one-way journey. Luckily, some airline credit cards include free checked bag perks. If you’re a frequent flier who struggles to pack light, this credit card benefit can help you keep more money in your checking account.

Don’t ignore the benefits of using credit cards

It’s good to be cautious, but don’t be afraid of credit cards. Many people steer clear of using credit cards because they worry about accumulating credit card debt. It is possible to rack up credit card debt, but you can make strategic choices to avoid this type of debt altogether.

Credit cards can be a great personal finance tool if you use them with care. Only charging what you can afford to pay off to avoid interest and paying your bills on time may help you improve your credit score. You can also benefit from using credit cards to earn rewards and by taking advantage of valuable perks like the ones mentioned above.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.American Express is an advertising partner of The Ascent, a Motley Fool company. Natasha Gabrielle has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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