You may be paying more in fees than you need for your investments
Investing in the stock market has become more popular in recent years. ONE personal finance survey by Gallup revealing that 61% of adults in the United States own stocks, the highest level since 2008.
A big factor in this trend is the rise of financial advice on social media. A survey conducted by market research firm Prolific and commissioned by Forbes Consultant found that 79% of millennials and Gen-Zers have sought financial advice on social media.
However, social media tends to focus on the trendiest and most exciting investment news that could also cost you thousands of dollars in fees in the long run. Here are three simple tips to invest more money while saving on unnecessary fees that are often overshadowed.
1) Consolidate your investment accounts, especially old employer-sponsored pension funds
As a financial coach, I’ve learned that many people ignore their old employer-sponsored retirement plans after they leave their companies, not realizing that they’re paying additional administrative and maintenance costs to keep those accounts in place.
It’s hard to say because as an employee, you focus primarily on how much money you personally contribute without further considering the fees charged for the investments you choose, as well as the fees that will be part of your employer’s plan.
My husband left his 401(k) with a previous employer and after looking into the situation further, I learned that he was paying about $100 per quarter to keep the account there with no added benefit. So we moved it to an individual retirement account at Fidelity to save money on fees.
If you have a retirement plan, like a 401(k) sitting with a previous employer, it can be a bit of a pain. But rolling it into an individual retirement account or your current employer’s plan will help avoid potentially hundreds of dollars in unnecessary costs.
You’ll also get the added bonuses of having fewer usernames and passwords to remember and more control over how you want to invest your money now and in the future.
2) Max Out Your Retirement Accounts Before Opening a Brokerage Account on an Investment App
In recent years, there’s been a boom in investing apps for beginners—including Acorns, Betterment, and Robinhood—touting their ability to make investing easy and fun. However, by investing in these tax-focused apps, you’re leaving money on the table.
However, whenever I’ve asked people how much money they invest in their employer’s retirement accounts, they typically:
- they don’t contribute at all;
- contribute only to their employer’s cause; or
- they contribute to the match without knowing the actual dollar amount.
Before you invest in an application where you have to pay more tax on your investments, try going up to the investment limit in your pension plan before opening a new account.
Instead, you can grow your investment portfolio this way, saving you the taxes you would pay either pre-tax in a traditional account or after-tax in a Roth account. There are differences in taxes in these accounts, but both traditional and Roth retirement options save you much more in taxes than putting the same money in an investment app’s brokerage account.
The annual amount individuals can contribute to their 401(k), 403(b) or 457 plans in 2024 will increase to $23,000 — up from $22,500 for 2023.
The limit on annual contributions to an IRA increased for 2024 to $7,000 if you’re under 50 and up to $8,000 if you’re over 50.
3) Pay off all your credit card debt before continuing to invest
Many financial advisors tell you to never stop investing or invest and pay off debt at the same time. But if you have credit card debt, you’re losing money at a faster rate than money in any of the investments you’d make, especially if you’re a younger investor focused on the basics.
The average credit card interest rate is 27.81%, according to Forbes Consultant weekly credit card charge report. That means hundreds or even thousands of dollars of your money is being eaten up by credit card interest rates, and those rates will continue to remain high in 2024.
The best part about paying off credit card debt is that once it’s gone, you can put more money into investments without worrying as much about your bills. Investing often gets more attention and it can seem like you’re losing the excitement. But staying out of credit card debt before you invest more money will save you thousands of dollars and years of stress in the long run.
