As readers of investing and finance blogs, you have probably heard of the cardinal rules for saving money when managing your investment portfolio. These rules include such things as keeping buying and selling of securities to a minimum to reduce transaction costs, only buying low cost mutual funds or index funds, and not buying load mutual funds. These are all absolute musts when building an investment portfolio. I have been doing some more thinking about investment fees and have come up with an additional list of 8 other ways that a dividend investor, or any investor for that matter, can save money in their investment accounts.
1. Choose the lowest cost broker that you can find. Let’s face it, buying and selling securities is a commodity, and paying extra for share trades is simply not worth it because there is no additional value provided by “more expensive broker A” over “cheap broker B”.
2. Choose brokers with low to no account maintenance fees. Some brokers charge money for inactivity in an account. As dividend investors, there will be quarters that go by when we do not buy or sell a stock. This is not a bad thing so why get dinged by your broker for doing nothing! In addition, if you are in Canada, RRSP trustee fees are common for accounts under a certain dollar value, but I know for a fact that these fees can be waived.
3. Don’t use margin or leverage in your investment accounts. I know this one can be argued either way, because of the tax deductibility of the interest costs, but in the end you are simply giving your broker more money by borrowing money. Brokers and banks love the concept of leverage because of the money they make on the interest fees.
4. Ensure your investment account is insured. Of course this one does not “save” you money in the traditional sense. However, it could save you lots of money down the road if your broker goes under.
5. Get the highest interest rate on the cash component of your accounts. If you are investor that likes to keep a cash cushion in your account for buying opportunities, then choose the highest possible yield you can get on your money market, t-bill, or otherwise. Choosing a low yield will just cost you in lower interest payment to you. There are a lot of alternatives out there so don’t just go with the first thing you come across. Doing some research on where to put your cash will lead to more money in your pocket.
6. Be very stingy on the investment newsletters you subscribe to. I know what you are thinking – but Dividend Guy you have a monthly newsletter yourself. Yes I do but I still stand by the fact that you need to be cautious on how much money you give to newsletters. In my opinion, you can learn as much or more by reading the blogs in my blog roll (sidebar) than you can in these newsletters.
7. Understand what investment fees you can deduct off your taxes, and deduct them. Each country has their own rules on what investment fees can be deducted. However, it is up to investors to understand which of the fees they pay out can provide them with valuable tax savings down the road. For example, if you keep share certificates in your safety deposit boxes in Canada, you can deduct this as a investment expense.
8. Find a broker that offers free dividend reinvestment into fractional shares. The power of dividend investing is the compounding effect of reinvesting your dividends into more shares on a regular basis. Many brokers do not allow you do do this, or if they do, they only allow you to buy whole shares, leaving the uninvested cash to be used at a later date to buy more shares, at the standard commission. Choosing a broker that allows you to hold fractional shares will keep your costs lower. Another alternative is using dividend reinvestment plans, where you buy shares right through the company. These plans typically allow you to hold fractional shares.
I know there are other ways that an investor can save money beyond the traditional rules (low cost funds, etc.) in their investment accounts, but this was all I could come up with right now. I would like to add to the list. Please use the comments to provide me with other ways. I will continue to add to the list above (and give you the credit for it!) as I receive the comments.