Nick’s Note: Regardless of the type of investment you make, fees can negatively impact your portfolio’s return…
So in today’s essay, colleague and Palm Beach Confidential analyst Greg Wilson shows why it’s important to understand them… goes over the right questions to ask before paying them… and lets you know how to pay zero (or little) fees when buying cryptos.
By Greg Wilson, analyst, Palm Beach Confidential
They’re boring. They’re annoying. And they may seem small and insignificant at first. But ignore them at your own peril.
As legendary investor Warren Buffett once said:
When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.
Bottom line: Fees can negatively impact your investments—whether you’re investing in stocks, bonds, or even cryptocurrencies. That’s why it’s important to understand them.
In today’s essay, I’ll show you the impact fees can have on your portfolio… and go over the right questions to ask before you pay them.
I’ll also show you how you can pay zero (or little) fees when buying bitcoin and ether.
You generally need to buy these two “reserve” cryptocurrencies before you can purchase any other coins in this emerging asset class.
But first, I want to show you why you need to be aware of fees—regardless of what type of investment you make…
Wall Street’s Dirty Little Secret
Generally, there are two types of fees you pay on your investments: transaction fees and ongoing fees.
Transaction fees occur any time you process an order. For example, when you buy, sell, or trade a stock, your brokerage firm will likely charge you a transaction fee.
Another type of transaction fee is a commission fee. That’s what brokerage firms charge you for their advice or for handling the purchase or sale of a security on your behalf.
Ongoing fees are charged on a regular schedule. Account maintenance fees are one example.
But the worst types of fees are those based on a percentage of your assets. They’re double whammies.
As your account grows, so does the amount you pay in fees. And each dollar that goes to a fee is one less dollar you can invest. You can see this in the chart below…
The chart shows an account that starts with $10,000, adds $10,000 every year, and makes 10% annually over 40 years.
The black line is a portfolio with no fees. The blue line is a portfolio with a 1% annual fee on total assets. And the green line bumps that fee up to 2%.
The portfolio with no fees will have $4.9 million after 40 years. Meanwhile, the portfolio with a 1% fee will have $3.6 million… and the portfolio with 2% in fees will have just $2.7 million.
While $2.7 million is great, your 2% in annual fees costs you $2.2 million.
There’s no doubt fees impact your investments. That’s why it’s so important to understand them.
Here are some questions you want to ask before you make your next investment:
What fees are related to my account?
What fees will I pay to buy, hold, and sell this investment?
How can I reduce the fees I’ll pay?
Do I need to keep an account minimum to avoid fees?
Are there any other miscellaneous fees I should know about?
It’s also useful to compare fees with similar products.
Below, I’ll show you how to do that for bitcoin and ether.
How to Buy Bitcoin and Ether for Little or No Fees
Crypto is a unique and emerging asset class. But like traditional investments, crypto trading involves fees.
For example, bitcoin ATMs charge an average fee of 9%. LocalBitcoins, a peer-to-peer exchange, doesn’t charge fees, but its premium can be 5% or more.
Of course, there are other exchanges that allow you to convert local currencies to bitcoin or ether…
Coinmama charges a 5.9% trading fee… but tacks on another 5% for credit or debit card transactions. Bitpanda charges 1.49% to buy bitcoin. And Coinbase charges 1.49% to buy bitcoin and other cryptos.
Fortunately, we’ve found a way for you to pay little or no fees when buying bitcoin (BTC) and ether (ETH).
The two most popular exchanges for converting local currencies to BTC and ETH are Coinbase and Gemini.
While we like and recommend both, only Coinbase Pro (the advanced version of Coinbase) doesn’t charge a fee to buy BTC and ETH.
So let’s start with Coinbase Pro…
On Coinbase Pro, you can transfer money from your bank account to the exchange with no fees. (Just be aware that your funds need to clear before you can make a trade.)
That gets your local currency into the exchange. You’ll use that currency to buy BTC or ETH.
Coinbase Pro uses a maker-taker fee model to determine its trading fees. A “maker” order is one that isn’t immediately matched by an existing order. And a “taker” order is one that’s filled immediately.
Here’s the most important thing to know: There are no fees for maker orders. But for taker orders, Coinbase Pro charges trading fees between 0.10% and 0.30%.
You can learn more about the Coinbase Pro fee schedule here.
Similarly, you can transfer money from your bank account to the Gemini exchange for no fees.
Gemini also uses a maker-taker model. But it charges a 1% trading fee whether you’re a maker or taker for all orders up to $25,000.
The advantage with Gemini is that you can place a trade as soon as you generate a transfer. (Just be aware that you won’t be able to transfer any of your coins until your funds clear.)
You can find Gemini’s trading fee schedule here.
If you don’t want to pay any fees on your BTC or ETH purchases, consider Coinbase Pro. Just make sure you’re a “maker” when you set a bid to buy or an offer to sell.
If speed is your priority, then consider Gemini. You’ll be able to use your funds right away… and for a reasonable, flat 1% fee.
Whether it’s stocks, mutual funds, or cryptocurrencies, fees can have a dramatic impact on the performance of your portfolio.
Analyst, Palm Beach Confidential
P.S. As I mentioned above, each dollar you save on fees is one more dollar you can invest. And as world-renowned cryptocurrency expert Teeka Tiwari says, it takes only one good idea to build wealth.
During this event, Teeka will give you the inside scoop on an event that will transform the crypto market in 2019… Plus, he’ll announce a bold, new venture that could hand you the chance at an extra $81,624 per year.
The only way to get an invitation to this free event is to sign up now. You can register your email address right here…