Subscriber Q&A: Trading Costs

August 30, 2012

Subscriber Question:

My broker charges a $75 transaction fee when I buy funds. Won’t these trading costs eat into my returns?

NoLoad FundX Answer:

Trading costs can be a burden, and, as we explained in the August issue of NoLoad FundX, transaction fees have a larger impact on smaller position sizes. But you don’t have to pay transaction fees. Most brokers offer hundreds of funds that can be bought and sold without incurring transaction fees, though you’ll still have to consider redemption fees from the fund or the broker.

The Class 3 Buys table notes which top ranked Class 3 funds are available NTF (or no-transaction fee), but you should also know how your broker notes whether a fund has a transaction fee or not (NTF).  Fidelity notes whether a fund is available NTF or with a transaction fee (see screenshots below).

Just like Fidelity, TD Ameritrade also has PSTDX is available NTF and charges a transaction fee for VEIPX, but while TD Ameritrade clearly notes the PSTDX is NTF, it doesn’t mention a fee for VEIPX (see screenshots below).

If you are concerned about transaction fees, another option is to buy exchange-traded funds (ETFs). Most brokers charge less than $10 to buy and sell ETFs.

 

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