60% of Investors Say Cost Plays Into Their Decisions. This Investment Won’t Come With a Lot of Fees

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It’s an option worth looking at. 

The whole purpose of investing your money is to grow it into a larger sum. After all, if it weren’t for that upside, you wouldn’t take on the risks associated with buying assets like stocks, whose value have the potential to fluctuate from one day to the next. Instead, you’d perhaps keep all of your money in a savings account and call it a day.

But while your goal may be to grow your assets into a larger sum, one thing might get in the way of doing that — fees. You may not realize it, but different investments you choose come with fees. Mutual funds, for example, pay fund managers to make investment decisions. That cost is passed onto the people who put their money into those funds.

Also, if you have a 401(k) plan through your job, you may have the option to invest your money in a target date fund. These funds are often the default investment choice for a 401(k), so if you don’t choose funds of your own, your money will commonly land in a target date fund automatically. But target date funds are known for charging their share of fees, and those could eat away at your returns.

If you’re eager to grow your money while minimizing your fees, there’s one investment it pays to focus on, whether you’re investing in your IRA or a regular brokerage account. Opting for it could not only help you keep your fees way down, but also, diversify your portfolio nicely.

It pays to look at ETFs

ETFs, or exchange-traded funds, are funds that allow you to buy a batch of different stocks with a single investment. What makes them different from mutual funds is that they’re passive funds that simply track different benchmarks.

If you buy shares of an S&P 500 ETF, for example, it’s like putting your money into the 500 largest publicly traded companies in the market today. If you buy shares of an energy ETF, you’ll be adding a whole bunch of energy companies to your portfolio without having to go out and research each and every one.

ETFs are a great option for people who are seeking to diversify their holdings. But they’re also great for people who don’t want to pay fees. And the reason you’re not paying hefty fees is because people aren’t being hired to devise an investing strategy. ETFs are far more passive.

An option to consider for your portfolio

A recent Schwab survey found that 60% of ETF investors cite cost as the most important factor when choosing an ETF. If the idea of losing some of your hard earned money to fees doesn’t sit well with you, then you may want to consider loading up on ETFs, whether you’re saving for a far-off goal like retirement or are investing your money for other purposes.

As an added perk, ETFs trade publicly. You can track their share price from day to day, and you can even, in many cases, buy shares of ETFs on a fractional basis. This means that if you can’t swing the cost of a full share, you can buy a portion of a share to keep growing your portfolio even during periods when money is tight.

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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.Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab. The Motley Fool has a disclosure policy.

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