How Ignoring Your Brokerage Account Could Cost You Thousands

by Dana George | Published on Sept. 26, 2021

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There's no need to hover over your investments. An occasional check-in will do.

Between work, family, and social obligations, we're all busy. Few of us feel like babysitting our brokerage accounts. However, the sad truth is this: You could be losing thousands of dollars by adopting the "set it and forget it" method of investing.

Should we spend our days tinkering with our investments, reacting to every small change in the market? Absolutely not. Investments are meant to grow our money over the long term. Obsessing over them daily (or even weekly) is not only excessive; it's a surefire recipe for making emotion-driven decisions. That said, pretending investments don't exist is an expensive habit.

Here, we'll look at three ways ignoring investment accounts could be exceedingly expensive.

High fees go unnoticed

A few years ago, the financial services firm Morningstar conducted a fascinating experiment. They asked 3,600 individuals to allocate $10,000 in a hypothetical investment account. The individuals had three S&P 500 index funds from which to choose. The three funds were seemingly identical, other than the fees associated with administering each.

The obvious decision would be to look at the fees associated with each fund and put the entire $10,000 into the fund with the lowest fees. That way, the investor would get the most for their money.

Rather than do that, though, many of the 3,600 participants spread their money across all three funds. In a way, it makes sense. After all, we continually hear about the importance of diversifying, and how much safer our investments are when we spread them around. But the advice regarding diversification sometimes leaves this out: As we diversify, we must also look for the lowest possible fees.

For this experiment, fees ranged from 0.40% to 0.04%. Still, when researchers asked participants to choose one of the three funds, fewer than half chose the fund with the lowest fees.

What this would mean if participants were dealing with real investments is that the lowest fee would cost an investor $134 over 20 years. Choosing the fund with the highest fee would cost around $1,300 over the same period.

If $1,300 doesn't sound so bad, let's extrapolate a bit. What if the amount invested was $100,000 rather than $10,000? Paying a fee of 0.40% means losing out on $13,000. At the same time, the investors who opted for the lower-fee index fund would pay $1,340 over 20 years.

If you haven't done so recently, check the fees associated with your investments. If they're too high for your liking, it may be time to do some rearranging.

Portfolios get out of balance

Failing to keep your portfolio balanced can also eat up profits over time.

Let's say you have 75% of your portfolio in stocks and the other 25% in bonds. When you first decided how to allocate your investments, this distribution worked perfectly. However, the performance of each asset has likely changed over the years. Perhaps stocks have increased in value much more dramatically than bonds, and it's time to rebalance.

You want to balance your portfolio in order to reduce risk while increasing your return. There's no way to know exactly what the future holds, but by checking in on your brokerage account semi-regularly, you can identify when one allocation is out of whack with the others.

Dividends go to waste

Let's say you invest in a company that pays dividends. When that company earns a profit, they pay a portion to shareholders, and you receive a dividend payment. As nice as receiving a dividend check is, you can make the money work for you by simply reinvesting it.

Here's how it works if you own 1,000 shares in a company that pays a $1 quarterly dividend:

  • Your first dividend check is $1,000.
  • If the company stock is selling for $50 per share, your reinvestment purchases 20 shares. So now, you have 1,020 shares instead of 1,000.
  • When the next dividend is paid, you get $1,020. If the stock price is unchanged ($50 per share), your latest dividend will purchase 20 more complete shares and one fractional share. That brings you up to over 1,040 shares.
  • The process continues, with profits purchasing more shares.

You could use these dividends for other purposes, like paying living expenses. But by reinvesting them, you have the chance to buy new shares in a company with no brokerage fees. Plus, reinvesting dividends causes your portfolio to grow with no effort on your part.

It takes mere seconds to check in on your brokerage account. Call your broker or look at your brokerage account online to make sure you're set up to reinvest dividends. There's usually a box you can check indicating your desire to put your dividends back to work.

A balanced financial life can be found in the space between obsessing over every detail of your money and setting aside time for occasional check-ups. As long as you know which items to check up on, you can quickly ensure your investments are working for you and get back to your life.

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