Investment Trust: How different are stock commissions and trust fees?

(Updated on 2021/01/20)

• Financial portfolios
• Asset allocation (risk reduction)
• Commission charges
• Trust fees

Hi there, Kinkajyuu here.

Are you well-versed in how to make a financial portfolio? Do you know how to make a proper asset allocation? How high is too high for trust fees and stock commissions? These are key topics for beginning investors. You’re going to have a bad time if you start investing without understanding these topics.

Today I’ll share my thoughts on financial portfolios, asset allocations, trust fees and commission charges.

• Financial portfolio

Portfolios are simply the allocation of an investor’s assets. For example, someone might own stocks, bonds, and cash in a 7:2:1 ratio. You can total up all your assets to 100% and allocate specific percentages as you’d like.

• Asset allocation (risk reduction)

A good asset allocation means keeping balance in your portfolio. For example, stocks are risky and bonds and cash are low risk (but not “no risk”).

People who invest usually consider how much risk they can take.

But actually, it depends on each person. How much risk a person can take is called “risk tolerance,” and this is different from person to person.

Risk tolerance usually changes with age.

People in their 20s can generally take bigger risks because they have fewer responsibilities, while older people should take fewer risks. Younger people generally don’t have mortgages or families to support, but they have plenty of time to save for retirement. Even if their assets go down in value, they can recover in the long term. Also, younger people can learn from their failures and use that knowledge for the rest of their lives.

On the other hand, people in their 50s are likely to be supporting a family and have a mortgage. And of course, they have less time to save money for retirement. In short, they cannot afford to have any failures until they retire.

There are some other risks besides age-related ones. One way to assess your risk tolerance is to find the amount of money you would be uncomfortable losing. If you cannot stomach that loss, you cannot take that much risk.

In my case, I think I have a medium risk tolerance. I’m in my 30s and investors my age can usually take higher risks. But, to be honest, I have some health problems that cost a lot of money to treat. Since I have a lot of medical fees, I would be in big trouble if I invested a lot of money and lost it all.

In any case, if you feel like you’re taking on too much risk, then it’s better to make safer investments such as bonds or fixed-term deposits.

• Commission charges  

Many banks charge commission fees, however some banks do not have any. Generally, you won’t get charged by internet banks. Major city banks often charge unnecessary fees, but almost all internet brokerages like Rakuten Securities or SBI Securities don’t charge them. You can avoid the fees simply by using an internet-based brokerage. If you’re not careful, fees can eat up a lot of your earnings.

• Trust fees

Trust fees are the management fees for investment trusts. Trusts are simply organizations that manage money after they collect them from customers. Trust fees are fixed costs, so if you can reduce them you get a benefit every month.

Investment trusts can hold many types of funds, such as index funds, active funds and balanced funds.

Generally, trust fees for index funds are cheaper than active funds and balanced funds. Trust fees are the highest for active funds. Index fund trust fees are usually under 1% and active funds are 1-3% or more. 1% may sound low, but you can select funds with fees as low as 0.09%. Index funds commonly charge 0.2%-0.5% in fees. So, to avoid high fees, I do not have any active funds in my portfolio.

You can compare the effect fees have on earnings between two funds. Try using the calculator below to compare two scenarios, one at 0.1% and one at 3%. You might be shocked at the difference a few percent in fees can make.

Mutual Fund Calculator: Find What Fees Will Cost You

https://www.nerdwallet.com/blog/investing/mutual-fund-calculator/

However, if I can share one piece of advice, it is to always keep up with the newest information. Information changes quickly, including investing systems and rules. Keeping up to date is the best way to protect yourself.

I also wrote about portfolios in a previous post, which you can find below.

Investment trust fund: The Importance of Diversification

I hope these posts will help as you start to invest and select funds.

Cheers,
Kinkajyuu