Investing is already difficult, but knowing your investing costs is something many new traders overlook. As investors focus on performance and portfolio building, fees and expenses quietly eat into their returns.
What are investing costs
Investing costs are the fees every trader and investor pays to execute a trade. Whether it’s to open a position, sell a stock, or keep a trade open for longer, these fees are non-negotiable. For larger positions, investors also pay management fees if an investment manager manages their accounts.
Zero-fee investments are extremely rare, and the difference lies in how transparent and justifiable the costs are. Even ETFs carry management costs—although small, they still need to be accounted for.
Why investing costs matter
Investing costs affect the total profit a person makes from their investment. If a portfolio generates 9% and total costs are 2%, the actual return is 7%. Although small and sometimes insignificant, these costs affect low-capital investments more than they do larger portfolios.
Costs are often the only things users can control. They have the power to choose which platform to use, how to structure their costs, and which investment instruments to choose. For example, if one investor has costs totaling 2%, they can look for platforms that lower management fees to secure a total of 1.5%. A 0.5% difference on a €500,000 portfolio adds up to €2,500.
Can you deduct investing costs from your investment returns
Investing costs typically cannot be deducted from the returns you receive, but they can reduce your taxable gains. When calculating capital gains for tax purposes, the Netherlands doesn’t allow you to deduct any fees or losses.
Other systems, like in the U.S., allow certain investment expenses to be subtracted from your profits.
One exception in the Netherlands is that interest on investment debt—money borrowed to invest—can be deducted in certain cases within the Box 3 calculations.
It’s important to understand that specific rules vary by jurisdiction, and anything unclear should be discussed with a tax advisor.
Common investment costs and fees for investors
Maintenance fee
Maintenance fees cover the cost of holding your investments in an account. Brokers charge custody fees for holding stocks, bonds, or other securities on your behalf. Mutual funds and pension plans charge deposit fees paid to the depository institution.
These fees typically range from $25 to $90 annually for standard accounts, though they can be significantly higher for specialized accounts or larger portfolios.
Buy/Sell commission
Buy and sell commissions are charged each time you execute a trade. Brokers typically charge between 0.1% and 0.5% of the transaction value, with some setting minimum fees of $5 to $10 per trade.
Even “no-load” funds may charge small transaction fees that aren’t immediately visible. Frequent traders pay significantly more in commissions than long-term investors, making trading frequency a major cost factor.
Platform fees
Platform fees are charged by investment platforms and robo-advisors for access to their technology and services. These range from flat monthly subscriptions to percentage-based fees (typically 0.25% to 0.50% of assets under management).
Transaction fees
Transaction fees extend beyond simple buy/sell commissions. Using international investment tools results in conversion fees of 0.5% to 2%. For crypto investors, gas fees add another cost that can increase with network congestion.
How to determine the hidden costs of investing
To calculate how much you’re left with when investing, always review how companies and platforms structure their fees. Before anything else, take note of the transaction fees, management fees, and platform fees—if required.
Note them down and create a scenario of investing €1,000 to calculate the estimated return, minus the operational costs. For ETFs, for example, it’s important to examine the Total Expense Ratio (TER), which combines management fees, administrative costs, and operational expenses into a single percentage.
When investing in crypto, always consider borrowing costs if using leverage and maker/taker fees for spot trading. Some platforms display fees directly on account statements, while others require navigating multiple steps to access the information.
Types of hidden fees
There are also hidden fees, such as inactivity fees, borrowing fees, or even withdrawal fees, which go unnoticed. Lower-grade platforms use inactivity fees to continue generating volume on the platform.
Performance fees add another layer that isn’t always clearly stated. Some structures could charge fees without accounting for previous losses. For example, a fund could lose 10% one year, gain 12% the next, and still charge performance fees on that 12% gain.
Borrowing fees are known to benefit traders, but new-to-trading regular investors who use leverage or margin might not realize they’re paying interest for the time they borrow assets.
How investment fees affect your returns
Investment fees can lead to a less-performing portfolio than many would expect. Over time, 1.5% annual fees don’t just reduce returns by 1.5%; they also reduce the potential to accumulate wealth exponentially.
The impact becomes stark when comparing different fee structures over extended periods. For example, an investor starting with €10,000 earning 7% annually would accumulate:
- $57,400 after 25 years with 0.25% fees
- $43,200 after 25 years with 1.5% fees
- $31,600 after 25 years with 2.5% fees
Small percentages can cause a big dent in a person’s portfolio, and everyone needs to research platforms, understand the fees, and make the right choice before investing.
Why it’s important to minimize investing costs
Minimizing costs is important because fees represent guaranteed reductions in returns, while investment performance remains uncertain. Every dollar you save in fees is a dollar that continues working for you, compounding over time to build wealth.
Research consistently shows that actively managed funds with higher fees rarely outperform low-cost index funds over long periods. The few managers who do beat the market are extremely difficult to identify in advance.
Take control of your investment costs
Investment costs might be inevitable, but new platforms and tools provide easier access to financial instruments—at a cost. What’s achievable, however, is understanding the cost structure, researching the fees upfront, and calculating the total annual cost before investing.
Companies like Yieldfund, which invest in the top 10 cryptocurrencies and offer yearly returns of up to 48%, have no hidden fees. Yieldfund doesn’t charge any management or entry fees, as it operates on a performance-based model. Investors always know how much they’ll receive, with no surprises.
