With so much else clamoring for their attention, many investors have a hard time making money in the markets. One way to better your chances (though it certainly doesn’t assure you win) is to lower the fees you pay for advice, trading commissions, management fees, and portfolio management.
Fees down, good for investors
Good news for investors on this front: fees for most types of investment services continue to drop and drop hard.
- Mutual funds: Mutual fund expenses have dropped significantly since 1990
- ETFs: Mutual funds’ low cost little brothers, exchange traded funds (ETFs), are fighting tooth-and-nail for investor money and ETF fees are dropping faster than Jim Cramer flip-flops on stocks. In fact, depending on your brokerage, you may be able to trade ETFs for free (though you would still pay a management fee).
- Portfolio managers: Investment advisors have been consistently lowering their fees since 2007.
So, investing is definitely cheaper now for investors. But the next step — what to invest in — still needs to be answered.
Here are 4 ways to have a professionally managed portfolio for less than $10 a month
1) Invest via motifs
Investing in ideas, trends — what famed investor Peter Lynch recommended when he said to buy things you know — works for Chris Camillo and helped him take $20k and turn it into $2 million.
The author of Laughing at Wall Street: How I Beat the Pros at Investing (by Reading Tabloids, Shopping at the Mall, and Connecting on Facebook) and How You Can, Too is a very astute investor who keeps his eyes and ears open for investable trends. When he spots an opportunity, he moves in — in size and scoops up major profits.
Many of us recognize opportunities we’d like to invest in but lack the follow through — what are the appropriate stocks to buy if we think cloud computing is going to be huge? Tablets take over the world? A changing global demographic?
MotifInvesting launched in early June with a simple premise — idea-driven investing. The site offers about 50 preset portfolios — motifs — that are comprised of various stocks centered around a central theme (Discount Nation, Mobile Internet Tsunami, etc.). Cost? $9.95 to buy an entire motif of around 30 stocks. No management fee, no trailing sales commission. Cheaper than ETFs, which charge an ongoing management fee and a transaction fee (in most cases).
2) The world’s cheapest ETF portfolio
Cheap keeps getting cheaper when it comes to investing in building block ETFs. We’re down to below 12 basis points — which comes out to 0.0012 or .12% for a well-diversified, balanced portfolio at bargain basement prices.
Assuming a $100,000 portfolio, you’d pay just about $120 a year (or $10/month) to get this portfolio.
3) Identify a star, invest using automation
The level of portfolio automation available to individual investors is pretty darn impressive. The problem is, it’s still a little clunky for most people. Many investors don’t know what it is, let alone know how to configure these platforms.
Automated trading means applying rules to your portfolio that automate the buying and selling of specific securities. These can be technical rules (sell when we dip below the 200 day moving average) or they can be configured to mimic the trades of another investor. Platforms like Covestor, Collective2 (hear my interview with the founder, Matthew Klein), Zignals, and newer entrant, Roboinvest allow investors to identify talent first and foremost.
Investors using these platforms identify talented investors/traders and essentially pay a subscription fee to “follow” their moves. Following can be merely tracking what the leader investor is doing to actually setting up a brokerage account to mimic the leader’s moves. Every buy and sell gets replicated automatically in your brokerage account (eg., Interactive Brokers, E*Trade).
Fees here can range from success pricing (only pay when the trader is profitable) to a couple of hundred dollars a month.
4) Software weeds out losers, betters performance
There’s been a lot of press about some of the newer entrants into the investment advice game.New platforms like Jemstep, SigFig, and FutureAdvisor enable an investor to link up your accounts and run some tests tosingle out poor performing funds. The software then makes optimized suggestions of replacements for these laggards. All three platforms are entirely free — empowering DIY investors to continue doing what they’re doing, while checking in for some automated, professional advice.
Investing is no longer expensive, but focusing on fees alone also won’t get you to the Promised Land of Profits. The tools and technology out there now will definitely help you professionally manage your portfolio — all for less than $10 per month.