Fees & Expenses

John Bogle, the Vanguard founder explains that, when it comes to investing, "performance comes and goes, but costs go on forever." He's referring to the fact that the most effective way to increase investment returns is to keep your investment-related expenses as low as possible.

See how mutual fund fees affect your return.

In general you incur four types of investment-related expenses:

• Transaction fees -- The cost of buying or selling stocks and bonds. This expense is straightforward but the cost can vary dramatically, so make sure you get it in writing before you hand over your money to an advisor or brokerage firm
  
• Money management fees -- These are charged by investment companies that manage portfolios of stocks, bonds, and other financial instruments like mutual funds and unit investment trusts. These fees can range from 0.1% for an index fund to 3.0% for a niche mutual fund to 2.0% plus 20% pf profits for a hedge fund.
• Advisory fees -- The fees charged by a financial advisor. These are usually paid in the form of commissions (to a traditional broker or planner) or in an annual fee (to a registered investment advisor).
• Taxes -- Like death, taxes can't be avoided but they can be managed. You can lessen your tax burden by understanding how different types of investment income are taxed and making smart choices about which investments to hold in which accounts. For example, dividends from REITs are taxed as ordinary income rather than at the 15% dividend rate.