Author: Mr and Mrs DDU.
There are so many different things to think about when we’re investing: How risky and volatile is the investment? What is its dividend yield? Will it keep growing its profits for many years to come? And many other questions.
One of the most underestimated parts of investing is the costs associated with buying and holding an individual share or fund. Costs can make a huge difference to our return on investment. If we’re paying a 1% charge of our portfolio to a fund manager each year, that’s a significant amount of compounding that we’re not earning each year – so they better outperform the market!
We individually own each of the shares that we’ve purchased, so there’s an upfront brokerage cost but then we don’t pay any ongoing fees after that. Re-investing our dividends with companies that offer that service also gives us more bang for our buck.
The problem for Australians is that there aren’t many brokers. Compared to some North American providers, Australian brokers are some of the most expensive out there. But is that really a surprise? Aussies seem to enjoy the big 4 bank’s higher loan interest rates, lower savings interest rates and expensive Superannuation funds – have you ‘compared the pair‘ yet? (we’ve all seen those ads, you must have seen them by now).
If we were to buy a $2,000 parcel of shares right now, these would be the brokerage costs with the big 4 banks:
Commsec: $20 (1% of investment)
ANZ: $20 (1% of investment )
Westpac: $20 (1% of investment )
NABtrade: $15 (0.75% of investment )
Those prices are better than they were a few decades ago, technology has helped bring down the prices a lot, but they’re still expensive compared to other countries.
We’ve been seriously considering moving to one of the discount brokers in Australia such as IG or CMC. Their prices are quite a bit cheaper than the big 4 bank price we’re paying right now. If we can save on brokerage costs, that gives us more to invest or save. We’ve spent over $200 on brokerage fees so far, imagine how much we’ll have spent in 10 years time. So any way we can reduce the cost is a good thing.
For every dollar we save in brokerage is another dollar we can put towards our actual investing (and not to furnish the bank’s profits more).
I really hope the banks will reduce their fees in response to discount brokers like IG and CMC, but we highly doubt it.
Readers, have you done anything recently to reduce the costs of investing?
Thanks for reading this article about our investing journey Down Under.
Onwards and upwards!