Are you just starting out investing? If so, you’ll want to read this complete guide on how to start investing (without paying a ton of fees) so you aren’t blowing your money on worthless features and services.

Whether you’re employed, self-employed, or a gig worker, investing is one of the best ways to grow your income. And with ever-rising bills, unemployment rates going up, and savings rates still low, your basic income may be becoming inadequate for you to meet personal and family expenses. 

Every investment decision involves some level of risk, which is scary to newer investors. When deciding how you want to invest your money, it’s crucial to consider risk factors. The best advice I can give you if you’re just starting is to START SMALL. 

Start learning how to invest for free with Robinhood – a commission-free investing app

So in this article, I’ve put together a guide on how to start investing without paying a ton of fees. I’ll review the different investment options available and share expert strategies to avoid high fees. This way, you can get started right away without worrying about losing everything.

Let’s first start with some investment options that tend to come with lower fees already. 

Investment options with lower fees

How To Start Investing (Without Paying A Ton Of Fees) - Investment options with lower fees

Although most people have the desire to grow their income, the thought of losing money to brokerage and other investment fees is off-putting. The following are investment opportunities that are affordable and have lower fees.

Mutual funds

Mutual funds are one of the most popular investment options. Mutual funds work by pulling in multiple investments into one, actively-managed fund that an investor can buy into. Usually, a professional fund manager will control the account. The account funds go toward purchasing and re-purchasing a mixture of stocks for the investors. 

Mutual funds might require you to invest more money upfront. However, there are smart ways to avoid high fees from brokerage firms. 

Most of the established and more prominent online brokerage firms offer no-transaction-fee, no-load mutual funds. This option does not include transaction fees, which means you save money.

However, there are some disadvantages to no-fee transaction mutual funds. For example, there’s a high possibility the mutual funds will be more expensive than index funds and ETFs. You’ll also have to pay the fund’s expense ratio at the end of the year. 

Also, online brokers that offer free transactions often set a higher minimum investment (such as Vanguard). The costly buy-in might lock out people with little to invest.’

Another option is to buy mutual funds from fund companies. It’s possible to find fund companies offering mutual funds without charging transaction fees. Like online brokerage firms, most fund companies offer higher expense ratios compared to market index funds.

Peer-to-peer lending

How To Start Investing (Without Paying A Ton Of Fees) - Peer-to-peer lending

Lending money to friends or family members might seem like a bad idea due to the possibility of defaulting. However, you can make this a profitable business by lending smaller amounts instead of giving a chunk of your capital to a few people. 

For instance, let’s say you have $1,000 as your starting capital. You can start by lending smaller amounts to many people. Instead of lending $700 to one person, lend about $50 to multiple borrowers. The lower the amount you lend, the easier it is to repay. 

Since this is a self-directed investment, you won’t have to pay any entry or transaction fee.

If you’re not comfortable dealing with your friends and family members directly, you can sign up with a peer-to-peer lending company. These companies allow you to select the kind of loans you want to give. Most of them do not charge for registration.

One example of a peer-to-peer lending platform is LendingClub.

If you want to help fund loans through LendingClub, you’ll need at least $1,000 to invest. Once you invest, your money will be spread across multiple loans, which minimizes your risk as an investor.

What’s especially great about LendingClub is that you’ll get a monthly payout, rather than having to wait until the end of the loan to get your returns.

Robo-advisors

If you’re not too confident about handling the investment journey on your own, you should consider robo-advisors. This relatively new phenomenon usually involves investing in hands-off and low-cost ventures. 

Robo-advisors are automated investment platforms that provide advice based on the details you fill in a survey. You’ll need to answer questions about your age, risk tolerance, and retirement goals. Based on your answers, the robo-advisor will provide a sensible investment choice for you.

This low-risk and low-fee method gives you access to investment advice while eliminating the one-on-one human element. Unlike traditional financial advisors, robo-advisors offer tax-loss harvesting, charge fewer fees, and leave you with more money. 

One great robo-advisor right now is Betterment. They’ve been around for as long as robo-advisors have been it seems, and their platform is excellent. In fact, Betterment was my first robo-advisor. Like others – they’ll assemble a portfolio that’s based on your financial goals and risk tolerance.

But where Betterment really shines is its additional features. Not only can you get a taxable investment account, IRA, or 401(k) (though Betterment Business), but you can open a fee-free checking account and a cash account with Betterment now, too. So you can essentially do all of your banking with one brokerage.

Another option is M1 FinanceM1 Finance gives you a little more customization by letting you construct your own portfolio from the stocks and funds you want. Or, you can always choose from over 80 different expert portfolios. 

You can buy fractional shares of stock, which is a huge bonus, and you’re able to set everything up to be automated – rebalancing, deposits, etc. 

Commission-free and low-fee brokers

For any beginner, buying individual stocks might not be the right decision. Whether you want to purchase securities or stocks, the best option is to trade through a broker. 

Many brokers offer commission-free trades, while others charge a minimum fee. These experts provide:

  • In-depth data analysis.
  • Dividend re-investment services.
  • Automatic investments.
  • Access to mutual funds.
  • Analyst reports.

Some of the most affordable and reliable brokers today include:

Robinhood

Robinhood may be a great place to start for young investors since it offers a host of educational resources and it also doesn’t have any commission fees on trading, making it cost-effective for even the most inexperienced investors.

One especially unique feature offered by Robinhood is the ability to trade cryptocurrency through the platform (although, that’s not always recommended for beginner investors).

Advertiser Disclosure – This advertisement contains information and materials provided by Robinhood Financial LLC and its affiliates (“Robinhood”) and MoneyUnder30, a third party not affiliated with Robinhood. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Securities offered through Robinhood Financial LLC and Robinhood Securities LLC, which are members of FINRA and SIPC. MoneyUnder30 is not a member of FINRA or SIPC.”

You Invest

You Invest by J.P.Morgan aims to make investment easier for beginners and veterans by providing low-cost brokerage services. This commitment has placed the company among the most influential investment platforms with some of the lowest charges in the market.

They do not charge any registration or inactivity fee. Clients also enjoy free withdrawals whenever they want to transfer cash from their accounts.

Disclosure – INVESTMENT PRODUCTS: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

Precious metals

Investing in gold doesn’t necessarily mean you have to buy and keep a gold bar in your house or safe. There are many ways you can invest in precious metals, such as purchasing precious metal ETFs from your brokerage or physical metal in the form of coins.

One of the most advisable metals for your money is gold. According to recent statistics, the price of gold has risen by over 400% in the past two decades. 

Buying gold might not earn you as much profit as stock. However, it presents an easy way to invest your money without spending much on the transaction and registration fees. It’s a long-term investment whenever you want to avoid high brokerage fees.

Commission-free ETFs

An ETF (Exchange-Traded Fund) involves buying or selling bonds, stocks, commodities, or a basket of securities through a broker. 

ETFs have the same traits as mutual funds. The only difference is that they trade like stocks. This exchange means they track a market index passively. The investor still gets charged a fee whenever he/she buys or sells a share, but they generally have lower costs compared to mutual funds.  

Different online brokers offer varying commission fees and management costs. However, most established online brokers offer commission-free ETFs. You might have to pay some fee for owning the ETF, but you don’t have to pay any amount to purchase it. 

Keep in mind that some brokers will make you pay a specific price when selling the ETF. Before you commit your money to any online broker, make sure you read and understand the fine print. 

Employer-sponsored retirement plans

An employer-sponsored retirement plan acts as a source of income when you retire. The most common option is the 401(k) plan. 

Most employers match the funds saved by their employees, which makes it an excellent long-term investment. The employee is at liberty to decide the percentage of his/her income that goes to the retirement package. If you get a pay raise, you can adjust your contribution upwards as long as you’re within the allowable limit. 

Employer-sponsored retirement plans typically do not involve high transaction or registration fees. They offer a simple way to invest your money without risking it to as high of a degree as other account types. Plus, the money you deposit into your retirement account isn’t subject to income tax until you decide to withdraw it (i.e., 401(k)).

Bear in mind that withdrawing the money before your retirement age attracts some penalties. The US government has, however, relaxed some of these penalties for those affected by COVID-19. You can now withdraw up to $100,000 from your 401(k) account without paying the early-withdrawal penalty. This forgiveness will only apply for three years.

Bonds and treasury securities

Bonds are another way of making money through lending. However, they are more secure because you will be lending to the government, not individuals. The safest bonds are Treasury securities because they have government backing. However, they do not earn as much interest as corporate bonds.

Corporate bonds have higher returns but are riskier to hold. The risk is because they are company-owned, which means you could lose your investment if the company goes bankrupt. Although investing in bonds doesn’t require a lot of investment fees, it’s essential to consider the risk factors. 

Real estate

How To Start Investing (Without Paying A Ton Of Fees) - real estate

The mention of investing in real estate might scare many, due to the substantial capital requirements. For example, buying a home for resale purposes requires tens (or hundreds) of thousands of dollars to pull off. However, the last few years have seen new ways emerge to help low-income earners through crowdfunding. 

This form of investment allows a group of willing investors to pool money and invest in one property. The concept is similar to peer-to-peer lending. The good thing about this form of investment is that it does not require high fees or capital. 

You can start with as low as $500 to become a property owner through crowdfunded real estate investing. Many crowdfunded real estate programs don’t charge an entry or transaction fee. The burden usually shifts onto the property holders. Investors can choose from a variety of properties, including:

  • Mixed-use.
  • Commercial.
  • Residential.
  • Retail.

Investors can start reaping the benefits in as little time as a few weeks when the property sells.

If you’re looking for a low minimum investment to get you started in the real estate crowdfunding work, take a look at Fundrise.

Your minimum investment depends on the plan you choose, but their starter plan requires just $500 to get started. That’s not bad, especially considering Fundrise states that their historical annual returns range from 8.7% – 12.4%.

It is important to note, that these are not quick investments. You’ll need to stay invested for five years or more to earn the best return.

Target-date funds

These long-term and high-tolerance risk investments usually lean toward speculative but high-performing assets. 

Target-date funds are popular with 401(k) account holders who are looking to achieve a specific retirement goal. For instance, a young employee who is planning to retire in 2050 can opt for a target-date 2050 refund. 

However, this investment might tie you down when you decide to do something else later in life. You also do not get a guarantee to receive any profit at the end of the investment period. Most of these investments are no-load and charge minimal fees.

Investment apps

With recent advancements in FinTech, mobile apps are making investment more straightforward and cheaper. These apps do things like round up the purchases made on your linked credit or debit card and invest the change to different portfolios of ETFs.

On example is Acorns. The app then manages your portfolio the same way a robo-advisor does. All you have to do is link your credit or debit card and Acorns rounds up your purchases and invests the difference.

If you’re new to investing, Acorns is a great place to start. You won’t miss the small amounts of change that are invested for you. And while you won’t get rich investing through Acorns, it’s a good start.

How to avoid high investment fees

How To Start Investing (Without Paying A Ton Of Fees) - How to avoid high investment fees

If you’ve already invested, know that your fund manager could be making more money in fees than on your investment. However, there are measures you can put in place to avoid high investment fees. 

Trade only when necessary

You might be excited about trading more often to boost your portfolio’s value. However, you will be subjecting yourself to high investment fees. 

Investment firms love it when you trade more because you will still be paying some amount of trading commission. There are also tax implications whenever you trigger a taxable event. 

Any profitable trade you initiate with a non-registered account means you will have to pay some tax. The trick is to save money by only trading when it makes sense. 

If you’ve been trying to maximize profits by timing the market, stop this speculative behavior. Look for knowledgeable investment managers who will help you to make the right decisions.

I think by now most of you know my obsession with value investing. This is a prime example of when you only trade when necessary – it’s a true buy-and-hold strategy. Which leads to my next point.

Opt for passive investments

Actively managed funds usually attract higher management fees because they need extra maintenance. To minimize these fees, look for any available passive funds.

These funds should have a similar risk profile and performance history to the active equivalent. If you decide to go for the active funds, take time to investigate how likely it is to get higher returns from the trade. Higher returns should cancel the extra fees.

Weigh the profits against costs

How To Start Investing (Without Paying A Ton Of Fees) - Weigh the profits against costs

When comparing commissions charged on various investments, it’s critical to judge the fee based on the benefit. 

For instance, if you’re paying a 3% commission, check whether the return is worth the cost. If the commission can expose you to in-depth knowledge of many mutual funds, then it might be a small price compared to what you’ll be gaining. 

It’s essential to have an investment partner who can show you the ropes on your way to successful investments. Wasting your money on the cheapest fees that don’t bring you any benefits is not reasonable.

A good example is investing in real estate. You’re always going to pay higher fees, but the expected returns in the long-run are much higher.

Focus on the long-term charges

The biggest trap that most investors fall into is paying a minimal upfront fee only to face higher ongoing chargers in the long term. Before you select any company, broker, or trading partner, check the cost you’ll be incurring going forward. 

Although some account managers request for a higher initial fee, their ongoing costs are usually lower than back-end load or no-load funds. It might cost you more to get started, but the journey will ease along the way. This scheme is reasonable when you’re considering long-term investments. 

Avoid buying new issues

Most investors get excited whenever they hear of a new IPO. According to most financial experts, IPOs bear more risk compared to established companies. In most cases, brokers leverage the excitement that new IPOs create for investors. This hype is the time they make more sales. 

Check your fund’s expense ratio

It’s vital to know the amount charged as the annual expense ratio before committing to any company or broker. 

Funds expense ratio is the amount charged by ETFs and mutual funds for operating and managing the investment. The amount billed is a percentage of your total assets. You should, therefore, check the ratio charged by your ETFs or mutual funds. It will help you to avoid losing a significant amount of your profits.

Summary

It’s fine to pay for investment fees to your fund manager as long as you’re getting the right value for your money. But without the proper measures, high charges can cripple your trades and minimize your profits significantly.

Always invest in companies that are willing to waive some expenses. You also need to trade when necessary.

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About the author

Chris Muller picture
Total Articles: 163
Chris has an MBA with a focus in advanced investments and has been writing about all things personal finance since 2015. He’s also built and run a digital marketing agency, focusing on content marketing, copywriting, and SEO, since 2016. You can connect with Chris on Twitter.

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