Sneaky Investment Fees to Watch For

Everybody is looking for the next hot stock or mutual fund.

But we should be paying closer attention to the fees of the investments that we already own. For example, nine in 10 Americans underestimate the fees of their 401 (k) plans. This means that many of us are paying too much for our investments and undermining our financial goals.

To keep your investments on target, take notice of these four investment fees.

1. Front-End Load

A front-end load is a sales charge on purchases that effectively reduces your investment. This investment fee is a commission or sales charge applied at the time of your initial purchase of an investment, such as a mutual fund or insurance policy. Financial planners, investment advisors, and other types of investment intermediaries are the main beneficiaries of front-end loads.

Let's assume that you want to invest $ 5,000 into a mutual fund with a 5% front-end load. That would mean that $ 250 would go to middlemen and only $ 4,750 of your original investment actually lands in the mutual fund.

Some mutual fund managers claim that the front-end load is necessary to cover the extra services offered in a load fund. However, a study showed that mutual funds without front-end loads significantly outperformed those with front-end loads during the turbulent financial period of 2000 to 2002.

Still, some novice investors may still profit from the additional benefits that come from a load fund. Just make sure that you do not pay more than you have to.

▪ According to FINRA Conduct Rule 2830, a front-end load can not exceed 8.5% of your investment.

▪ If a mutual fund charges a front-end load of 8.5%, then it must offer a breakpoint schedule, rights of accumulation, and reinvestment of dividends and capital gains at net asset value.

▪ Most 401 (k) plans allow you to waive the front-end load of a mutual fund.

2. "Breakpoint" Cost

There is no specific breakpoint cost. Think of this investment fee as the extra money that you're paying to your investment manager by failing to meet a required investment level to obtain a reduced fee. For example, if you were to invest just $ 2,000 you would pay a 6% sales charge to invest in A-shares of a mutual fund, but if you were to invest $ 50,000 you would pay a lower 4.75% sales charge for the same share.

While diversification is a useful tool to minimize investment risk, too much diversification within the same mutual fund may be increasing your investment expenses.

▪ The larger your investment, the lower your applicable fees. By having $ 100,000 in investable assets within the same mutual fund family, you can often get some breaks on investment fees.

▪ Immediate family members investing in the same mutual fund company can pool their individual accounts to qualify for lower costs.

▪ When you meet pre-determined total purchase thresholds, certain mutual funds provide rights of accumulation, which qualify you for a reduced sales charge for any additional purchases.

▪ Some mutual funds may allow you to still qualify for a breakpoint benefit when you sign a letter of intent to meet purchase thresholds within a mutually agreed time frame.

3. Operating Expense

Large companies have more leverage than small ones in driving down the operational costs of a 401 (k) plan. That's why large companies are able to pick up the operating expense tab on behalf of their employees.

On the other hand, employees participating in the 401 (k) of small businesses may be forking out the cash to cover that expense. To determine whether you're paying for your plan's operating expenses, you can check with the manager of your 401 (k) plan. Another option is to find how much you're paying for your plan's operating expense by yourself:

▪ Grab a copy of your plan's summary annual report;

▪ Go to the "Basic financial statement" section;

▪ Subtract the amount of benefits paid from the total plan expense;

▪ Divide the amount from step # 3 by the total value of the plan; and

Take the percentage from step # 4 and multiply it by your total account balance.
If the amount that you're paying seems too high, you have a valid case for asking your employer to consider lower-cost options. When it comes to 401 (k) plans, small business owners are receptive to reasonable requests from their employees. A survey found that 32% of small business owners consider requests to switch 401 (k) providers, and 30% of those business owners choose lower-cost investment options within a plan.

How to Get Through a Tough Financial Emergency

We're all forced to deal with financial and other emergencies from time to time. It's not fun to think about, and we usually put off planning for it until it's too late. My husband and I recently experienced a family medical emergency and encountered a tough situation. We're both self-employed so this made everything even more financially stressful.

We quickly learned that we were not prepared to weather a financial emergency, but we have since begun taking steps to prepare. Here's how to get through a tough financial time without losing everything, and keeping your sanity and confidence intact.

1. Keep Things in Perspective

When you're going through a tough financial time it's important to stay positive and know that things will get better. Give yourself time to be frustrated, cry, scream, and then remain hopeful that the situation can only improve.

Hope is the motivating force that will keep you in the right mindset, so you can successfully handle this situation. Focus on the positives and view each day as a new chance to make everything better.

2. Surround Yourself With Positive Support

One of the best ways to keep a positive approach to life when you're having a tough time is to surround yourself with a supportive community. When you're struggling, you can reach out to your supporters for guidance and advice. They can also help you keep the situation in perspective, so it doesn't get blown out of proportion.

Make sure your positive group of supporters are people you can trust and who have your back no matter what. Community organizations, religious groups or churches, and other social support mechanisms can also lend a financial hand during difficulties. Map out the community resources you can rely on to help you during lean times.

3. Create an Emergency Backup Plan

The best way to conquer an emergency situation is to have a backup emergency plan in place. In case you don't have one already, now's the perfect time to create it.

What's your process for an emergency situation? Will you rely on savings, take out a loan, or get a second job? Do you understand the exact resources at your disposal? By understanding the options available, you can more readily navigate a financial emergency.

You should set goals because striving to meet a goal makes you happier. This is because a goal gives us structure and purpose, but also once you set a goal, your brain feels like you have already attained that goal. (This explains the euphoria we feel when we decide to “start a diet.”)

1. Our brain thinks we are finished before we start.
We need to be very careful setting goals. Our brain is hard-wired to get very upset when we lose something we already have, so we get upset when we don’t actually reach the goal. And, the bigger the potential for positive growth a goal has, the more anxiety and stress your brain is going to create around its non-achievement.

I have this process from setting yoga goals. Over the past five years I have become anxiety-riddled over the calming effect of yoga.

2. Goals are really about process – the results are ancillary.
To reach a goal you have to separate it into small steps. I did that before I had kids. I had a goal of going to a class. Then going to a specific class. Then paying for private lessons to get good. Then practicing every day.

Then I had kids, and predictably, things went to hell. I tried hiring a babysitter to do yoga (too expensive). I tried bringing my baby to yoga (in NYC the hard-core Ashtanga studios are okay with this. Probably because no parent can handle it for more than a few times.) And I tried doing yoga on my own, at home.