How to Cut the Cost of Investing

While investing in securities always comes with a risk of losing money, the fees you pay for investment services are a real and predictable expense. This guide explains how you can minimize the cost of investing in stocks, exchange-traded funds (ETFs), and other securities.

1. Get familiar with the possible fees

There are certain fees which you should keep your eye on when investing in stocks, ETFs, and bonds. Before you begin to invest, it is advisable to get informed about the different costs.

These are the most important fees:

• Brokerage fees: A brokerage fee is a fee that your bank or other stockbroker charges you when they buy or sell a security for you. At most banks, these fees are a percentage of the transacted amount. But many banks have a minimum fee per trade, with the percentage-based fee only applying when the fee surpasses the minimum. Some stockbrokers charge a flat brokerage fee for each transaction, or have a flat fee that covers multiple trades.
• Custody fees: Custody fees are charged on an ongoing basis for as long as you hold securities at a certain bank. Typically, custody fees are based on a percentage of the value of your assets. However, there are also banks that charge a flat custody fee.
• Product fees: Collective investment vehicles like mutual funds and ETFs have ongoing fees, which are shown as the total expense ratio (TER). The fees are deducted from the invested capital. For example, if an investment vehicle has a TER of 0.5 percent, then 0.5 percent of the invested capital is deducted every year by its administrators.
• Stock exchange fees: In addition to the brokerage fees charged by your stockbroker, you also pay a stock exchange fee charged by the exchange on which the trade is carried out. Depending on which stockbroker you use, the stock exchange fee may already be accounted for in the brokerage fee.
• Currency exchange fees: Depending on which stockbroker you use, you may be charged currency exchange fees when you buy securities that are denominated in a foreign currency.

In addition to the fees mentioned above, you also have to pay a Swiss stamp duty every time you buy or sell a security. The stamp duty is identical regardless of which stockbroker you use. Important: Swiss stamp duties only apply when you trade with a Swiss bank, but not when you use a foreign stockbroker.

2. Compare stockbrokers

The cost of investing is largely a question of which bank you use to buy, hold, and sell assets. There are huge differences in the fees charged by different service providers. Using an expensive bank will take a toll on your investment returns. A good first step is to compare stockbrokers using the interactive online trading comparison on moneyland.ch. The comparison lets you find the cheapest Swiss stockbroker based on your specific investment needs. You can either choose a user profile that matches your requirements, or create a custom profile.

3. Minimize the number of trades you make

Brokerage fees apply every time you buy or sell securities. Many stockbrokers charge a percentage of the transacted amount, but there are also stockbrokers that have flat fees. Example: If your stockbroker charges a one-percent brokerage fee, then buying or selling 1000 francs worth of stocks will incur a 10-franc brokerage fee. Many stockbrokers have a minimum brokerage fee per trade, with the percentage-based fee only applying to larger transactions.

As a general rule, frequently buying and selling securities generates a lot of brokerage fees. This cost detracts from your potential investment gains.

It is perfectly possible to put together a well-diversified investment portfolio without buying each stock or bond individually. If you have a long-term investment plan and make recurring investments into a few ETFs, then constantly buying and selling securities is unnecessary. You can ignore daily price fluctuations, as only the long-term gain is of any importance.

If you want to invest on a regular basis, then using a fund savings plan is a simple and often very affordable way to do that. With a fund savings plan, you automatically invest money in a fund (an ETF, for example) at regular, recurring intervals. From a cost perspective, fund savings plans are often cheaper than direct investments using a stockbroker because they usually do not have minimum brokerage fees. You can find useful information and a cost comparison in the guide to mutual fund and ETF savings plans.

4. Use passively managed funds

The premise behind active fund management – with its vision of outperforming the market through careful selection of investments – sounds appealing in theory. But in practice, it is often only the costs that are higher, and not the performance. Fees charged by fund managers, shown as a fund’s annual TER, are subtracted directly from the fund’s investment capital. Over time, a high TER can hit your investment hard.

From a cost perspective, it is generally advisable to use passively managed funds like index funds and most ETFs. The TER’s of many passive ETFs and index funds is under 0.3 percent per year. Actively managed funds, on the other hand, often have TERs in excess of 1 percent.

5. Compare TERs

Depending on what you want to invest in, you may be able to choose from many different ETFs that all replicate the same theme or stock index. In this case, it is worth comparing the TERs of all the different ETFs available for the desired investment. You can then opt for the cheapest ETF that meets your criteria. What may seem like a small difference in cost can add up to a major expense over a long term, as the example below shows.

6. Choose a cheap stock exchange

Many stockbrokers let you buy the same asset on several different stock exchanges. The brokerage fees can vary depending on which exchange you choose. Some stockbrokers do not account for stock exchange fees in their brokerage fees, but charge you the exchange fees on top. It is beneficial to learn about the costs that apply to each stock exchange in advance, so you can buy the desired asset on the exchange that will generate the least costs. Bear in mind that stock exchange fees are generally small compared to brokerage fees.

7. Avoid unnecessary ETFs

ETFs are often the cheapest solution for investing in broadly-diversified investment portfolios. But that may not be the case for ETFs that invest in just a few different assets. For example, using ETFs that invest in a single precious metal or cryptocurrency (bitcoin or Ethereum, for example) is often more expensive than buying and holding those assets directly yourself. That is because ETFs have ongoing fees, and these add up to a substantial expense over time.

Be aware though, that buying, holding, and selling certain assets yourself also generates some investment costs. That is the case with buying gold and silver bullion, for example. Whether it makes more sense to invest directly or use an ETF depends on the assets in question and on the length of the investment term. 

Disclaimer: This article is provided for informative purposes only, and should not be considered as investment advice. The publisher does not accept any liability in connection with this publication.

More on this topic:
Compare Swiss stockbrokers now
Checklist for choosing the right ETF
How to choose the right stocks to invest in
Common investment mistakes to avoid
Common ETF investment mistakes to avoid
How to invest money in Switzerland