Posted by Ryan on July 16th, 2008 in Taxes and Fees

Not all investments are the same. Buying 10 shares of Microsoft through your online brokerage account is probably a lot cheaper than buying the same exact shares through an investment firm. The lower the investment costs, the more money you make. It is as simple as that.

There are two big reasons that the same exact investment can vary in cost:

1. Fulfillment of order. If you place an order to buy your shares at the current market price through your online brokerage account, that order will get filled immediately. If, however, you call your broker, there is a process to fill your order. By the time your order is actually filled, the share price could have already skyrocketed.

Solution: Place limit orders, which allow you to name the price that you want to buy at. It will be filled when there is a seller at that price willing to take your offer.

1. Fees. Just about any time you buy or sell a stock, option or mutual fund, there is a fee assessed in order to place your order. Since online brokerages are completely automated, overhead costs are low. This savings is passed on to you. Your investment firm may charge a percentage of your investment. For example, most online brokerages charge about $10 no matter the size of the trade, but some firms charge 1.5%. That means a $30,000 investment would cost you $450, but the same exact trade would only cost $10 through your online account.

Solution: Do your own trading and eliminate fees entirely with Zecco, which offers 0% stock trading. They make up their costs with advertising revenue.

Not only can excessive charges cost you thousands of dollars, they are unnecessary. Using an online brokerage firm can eliminate these charges and can be more convenient.

Millionaire Money Habit: Investing is not just about what you invest in, but how you manage your assets as well. Keep your fees low and your losses to a minimum, and you can reach your financial goals at a much faster rate.

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