As a retail investor, it's important to know how to run a portfolio without racking up excess broker fees and commissions.
If your dealing with smaller amounts of money, this becomes even more important.
To gain some perspective, lets say you have $5,000.
00 to do some trading.
You make 4 trades a week.
You have to buy and sell each time per trade, so 2 orders per trade, that's 8 orders a week.
At $10 per order, this strategy would cost you $4,160.
00 a year in fees.
Almost the entire amount of money you started with.
This is generally how most people lose in trading.
It is a worthwhile practice to diligently keep track of your fees and figure out ways to limit them through better portfolio management.
Usually this means doing much less 'taking profits' or 'trimming positions'.
With that in mind, here's my 2 simple steps to limit broker fees.
1.
Don't Trade - Brokerages love traders.
You never see promotions from brokers saying 'open your own long term investment account'.
They all say, 'open your own trading account' or 'be a professional trader with our super fantastic trading platform'.
They do this because an active trader is a far more lucrative sale then a passive investor for the brokers.
Speaking from experience, the majority of financial sales persons don't care if you pay too much fees; they just want the sale with the highest revenue to contribute to their quota.
These high revenue sales are usually credit cards and trading accounts, and are mercilessly pushed by management on employees to sell.
For the vast majority of traders, they keep the brokers in business while continuing to under perform a passive investor that holds great companies.
I learned the hard way in 2009.
Despite a great year for stocks, I missed some of the move by trying to 'game' or 'trade' the market.
Know this, if you trade in and out, your bound to miss a big move at some point; when the market moves up, it moves up very fast at the exact time no one expects.
Your better off riding the ups and downs the whole time, that way you'll never miss a big move.
During 2009, 'it's a traders market' was mindlessly plugged in the media.
As a newbie, I fell for the propaganda.
2.
Go for the Cheapest Broker Per Trade - Admittedly, I like a cheap deal and would generally sacrifice customer service and features for the lowest cost trades.
Depending on what you value, you want to do some research to find the best broker for you.
My advice is to go for the cheapest online broker per trade.
I only use my broker account when I need to buy or sell.
I generally log into my trading platform about 3 times a month.
(If your on yours everyday and claim to be a long term investor, stop now.
It's pointless.
) The fancy trading features is just another way to lure the investor into trading more and paying more fees.
Do you think Warren Buffett or Peter Lynch would have been better investors if they had fancy trading features? No.
Neither of them own a computer still to this day.
To be a successful long term investor, all you need is quarterly/ annual reports and the management discussion and analysis to keep up on the story.
All can be found online.
The rest is just noise, despite what the brokers and Johnny Trader down the street says.
Any questions, email me personally.
I'm John, my passion in life is teaching about saving, investing and stocks.
Glad to answer questions or chat.
john@riseofamillionaire.
com