Money Management

You may be throwing away tens of thousands of dollars in brokerage fees. 

Investing in the stock market can be a great way to build wealth over time. However, there are certain things you need to look out for in order to maximize your return on investment (ROI). One of the most important factors is fees. Even small fees can add up quickly, so it’s important to understand how they can significantly affect your ROI.

Fees can add up quickly

A recent tweet by Graham Stephan, a well-known finance expert, noted that a $1,000 investment in Warren Buffett’s Berkshire Hathaway in 1965 would have been worth $4.3 million by 2009. If Buffett had set up Berkshire as a hedge fund and charged the typical 2% annual fee plus 20% of any gains, the same investor would have been left with only $300,000, a difference of $4 million!

One of the main reasons why fees are so detrimental is that they can add up quickly. For example, let’s say you have a portfolio worth $100,000 and you pay an annual fee of 1% with an annual return of 4%. That may not seem like a lot, but when you factor in compounding effects, the number adds up fast.

Over 20 years, you would pay $28,000 more in fees compared to the same portfolio with fees of 0.25% — which is nearly 30% of your original investment! If you were able to invest that $28,000, it would have earned an additional $12,000. If your return is 12% per year, the fees will be over $116,000! Fees can make a big difference over time.

Different types of fees

There are several different types of fees that investors should be aware of. The first is known as an expense ratio fee, and it applies mainly to mutual funds and exchange-traded funds (ETFs). This fee covers expenses such as administration costs, management costs, and other operational costs associated with running the fund or ETF. Generally speaking, the average actively managed mutual fund management fee is 0.68%, and fees for index equity ETFs are 0.16%. Expense ratios, however, can be as low as 0.06% to 2%

Another type of fee is 12b-1 fees. This is a marketing fee that many mutual funds charge. It can range from 0.25% to 1%. If you have an advisor, you may either pay a commission or an advisory fee. Advisory fees on average are 1.17% per year. If your advisor receives a commission, the sales charge can vary greatly, and 5.75% isn’t unusual.

How to minimize investing fees

The best way to minimize fees is by doing research before investing in any particular asset or fund. Make sure you understand exactly what type of fees are associated with each asset or fund so that you know exactly what you’re getting into before investing your hard-earned money.

If you are using an advisor, ask how they are compensated and see if they are willing to reduce your fees. If you are comfortable investing by yourself, consider using a discount online broker, since they typically offer lower fees than traditional brokers do. This can be a good way to save money.

Fees are one aspect of investing that is often overlooked by investors, who tend to focus primarily on potential returns. While some fees may seem insignificant at first glance, they can add up quickly over time, drastically reducing your overall ROI if left unchecked. Fortunately, you can minimize the fees you pay by researching them beforehand and using online discount brokers or free investment apps. If you can minimize the fees you pay, it could mean growing more wealth over the long run.

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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 positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

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In his recently released budget proposal, President Biden included several budget measures that could help strengthen the Medicare program. 

President Biden recently released his proposed budget for the 2024 fiscal year. Many of the included proposed Medicare changes could help American seniors save money. Since Republicans control the House, it’s unlikely that these budget changes will pass as is. However, his budget proposal is worth discussing because if the measures became a reality, they could improve the personal finances of many older Americans.

The budget has a big focus on lowering healthcare costs

Much of the proposed budget focuses on reducing healthcare costs. Biden hopes to make healthcare more affordable for Americans and strengthen the Medicare program for seniors.

Biden hopes to save Medicare with the following proposed budget plans:

Give the Department of Health and Human Services (HHS) more power to negotiate Medicare drug prices: Biden hopes to lower prescription drug prices by giving the HHS more ability to negotiate Medicare drug prices. This proposed change would save the government money and lower out-of-pocket prescription drug costs for beneficiaries. It’s estimated that this initiative would cut Federal spending by $160 billion.

Cap Part D cost-sharing for high-value generic drugs: In the budget, Biden also outlines his plans to cap Medicare Part D cost-sharing for certain high-value generic medications used for chronic conditions like high cholesterol and hypertension. He proposes limiting cost-sharing to $2 per prescription per month.

Boost Medicare funding: Biden wants to increase funding for Medicare so the program can operate for at least another 25 years. He hopes to do this without reducing benefits or raising costs for beneficiaries. Medicare would be funded by increasing the Medicare tax rate on incomes above $400,000, closing existing Medicare tax loopholes, and using savings from proposed prescription drug reforms. It’s unlikely that Republicans in Congress will agree to increase taxes for high-earners.

Lower mental health costs for Medicare participants: The current administration wants to continue prioritizing mental health care. Biden proposes requiring Medicare Part B to cover up to three behavioral health visits yearly without cost-sharing, beginning in 2025. This change could help more Americans access affordable mental health care.

Biden discussed his budget goals in a recent opinion piece

Biden’s recent opinion piece in The New York Times further explained his plans to save Medicare. He explained that millions of Americans pay into Medicare their entire lives and should be confident they can count on the program when they retire.

He mentions that current projections show that the Medicare trust fund will be exhausted in 2028 and that his proposed changes would extend Medicare’s solvency beyond 2050. He calls on Republicans in Congress to prioritize the American people.

The proposed budget is just a start

While Biden’s budget includes recommendations that could save Medicare, it’s just a starting point. Now that Biden has outlined his budget wish list, it’s up to Congress to negotiate. With a Republican-led house, it’s unlikely that Congress will agree to the current proposed terms. But if some parts of the budget pass, it could help more Americans keep more money in their checking accounts, and give them confidence in the Medicare program going forward.

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You’ll never guess what causes the most money fights between couples. 

Money can be a stressful subject, so it comes as no surprise that lots of couples fight about it. In a survey by Orion, 42% of U.S. adults said they have disagreements about money with their partners, and 27% said it happened weekly or monthly.

Regular arguments, especially about the same subject, take their toll on a relationship. If you and your partner often argue about personal finance, it’s worth digging deeper into what you’re arguing about and how you can fix it.

Below are the five most common reasons couples fight about money, according to Orion’s survey, and the percentage of couples who chose each reason. We’ll also go over how to solve these issues, with some expert advice from Bola Sokunbi, founder and CEO of Clever Girl Finance.

1. Fears about market risk and the economy (35%)

The biggest source of disagreements for couples was fear about the market and the economy. Given the current state of both, that’s understandable. In 2022, the stock market had its worst year since the 2008 financial crisis. Inflation has been sky high for over a year. And many economists are predicting a recession.

Remember that these are all things you can’t control, and you and your partner are in this together. While market downturns and recession talk are stressful, they’re a normal part of the economic cycle. The stock market will bounce back, so continue to invest and don’t pull your money out. A recession may or may not happen, but you and your partner can prepare for it by saving for an emergency fund just in case you need it.

2. Whether to spend for today or save for tomorrow (29%)

It’s the classic financial dispute: Saver versus spender. One partner wants to put extra money into a savings account, while the other wants to make the most of it here and now.

In all likelihood, neither person is entirely right or wrong. Keep in mind that you two probably just view money differently. Bola Sokunbi makes a good point about this, as she notes that financial fights can stem from “upbringing around money, experiences in past relationships, or other life experiences that lead to different perspectives about money.”

Knowing how to save and spend money are both important. You shouldn’t spend every penny, but you shouldn’t save it all, either. You need balance, and being in a relationship with someone who views money differently could be a huge benefit. You two can balance each other out, if you’re both willing to compromise.

3. The importance of money in our lives (17%)

Another common issue is when one partner takes money much more seriously than the other. Maybe you’re the ambitious type, and your partner sees money as more of a necessary evil.

Now, if you’re reading this article, you’re probably the one who takes money seriously. What can you do if your partner doesn’t? Talk to them and try to get to the bottom of why they feel this way. Is money a source of stress for them, so they prefer not to think about it? Did their parents never seem to care about money, and they inherited that same viewpoint?

You can explain logically why money is important and all the ways having it improves your life. But this issue is often based more on emotion than logic.

4. How to communicate about money (10%)

Communication is key, but it isn’t always easy. Money is one of those subjects that lots of couples have trouble talking about.

Sokunbi shared some useful advice about having financial discussions with your partner. Here’s what she recommends: “Pick a good time (e.g. when neither of you is in a rush or stressed out with a work deadline) and go into the conversation with the mindset that you’ll talk and compromise but not argue. One discussion could be on a walk together about planning for upcoming bills, another could be over a casual meal about your joint and separate goals.”

5. Whether money is best spent on self or significant other (9%)

The final item on the list is deciding how to spend money — on yourself or on your significant other. Sometimes, there’s a reasonable explanation for this issue. For example, your partner may just not be the gift-giving type.

But it’s certainly understandable how this can be frustrating, especially if you’re more generous with your partner than they are with you. This is another situation where it’s good to get everything out in the open. If you feel unappreciated because your partner only spends money on themselves and not you, tell them. There’s nothing wrong with wanting a relationship where you both treat each other.

As you can see, there’s quite a range of reasons why couples fight about money. But if you and your partner are willing to work at it, they’re all fixable. Communicate with each other, get to the root of the problem, and you’ll reach the point where you have no money arguments.

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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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