The management fees you pay on your investments depend on what type of investment you have.
If you are buying stocks and bonds directly and are building your own portfolio, you will typically only pay transaction fees for each trade, which can be as low as $5 to $25, depending on the brokerage you use and the size of your transaction.
When investing in mutual funds, exchange-traded funds (ETFs) or other investment funds, you aren’t responsible for buying the underlying stocks and bonds – this job is left to the professionals – but you are typically charged an annual fee for these services.
So where do these fees go? Let’s take a look at the typical mutual fund.
Fees are an important piece of the puzzle when deciding between various mutual funds. A mutual fund will disclose its management expense ratio (MER), which will tell you what percentage of your investment you are paying in fees on an annual basis. The MER can be found in the mutual fund’s prospectus and other marketing documents, and it’s something you should look into.
The MER is the full amount of fees that you, the investor, will pay, but the MER is a combination of three underlying fees: a management fee, a trailer fee and the operating expense ratio (OER).
Below is an infographic to show a simple breakdown.