Enemies of Investing Returns - FEES

This is the first in what will be a series of posts about enemies of investing returns. While the effects of compounding interest on savings was discussed in earlier posts (and the amazing difference that beginning to save early can have on accumulation of wealth), these effects can be greatly reduced by getting lower investment returns. In fact, most investors get significantly lower returns than the stock market in general. In these series of posts, we will discuss the "enemies" of investing returns that can give away your returns to big investment companies.

ACCOUNT INACTIVITY FEE
Let's talk about account inactivity fees. I held a small account at E-Trade (about $3K-$4K). When I started with E-Trade, there was no account inactivity fee. However, while I held the account there, they started charging me $40 per quarter if I did not make sufficient trades. I was using a buy and hold strategy, so I rarely had any trades. So, if I left my money there I would have been paying $160/year to E-Trade. $160 that should stay in my pocket. 5% of my annual returns. The first 5% of any money I made was slated to go to E-Trade and I would have to earn a 15% return to realize a market 10% return. In some earlier posts the differences between 10%, 8% and 6% were shown to be huge. Imagine the difference in returns if you are paying 5% in fees.

So, make sure you don't lose your returns to fees. By the way, I moved my account to Scottrade, which has no account inactivity fees. There are a number of other online brokerages with also have no inactivity fees.