As an investor, one of the key factors in building wealth is keeping a close eye on fees. Whether you're working with a wealth manager or investing on your own, high fees can eat away at your returns over time. One effective strategy for reducing fees while still maintaining a diversified portfolio is through proper diversification.
Diversification is the practice of spreading your investments across different asset classes, industries, and geographic regions. By doing so, you can reduce the risk of your portfolio being overly exposed to the performance of a single investment or market. This not only helps to protect your investments from volatility, but it can also help to reduce fees.
When working with a wealth manager, one common fee structure is based on a percentage of assets under management. This means that the more assets you have invested, the higher the fees you will pay. By diversifying your portfolio, you can potentially lower the overall amount of assets under management, which in turn can reduce the fees you pay to your wealth manager.
Another way diversification can help reduce fees is by investing in lower cost index funds or exchange traded funds (ETFs) instead of actively managed funds. Actively managed funds typically have higher fees due to the costs associated with research, trading, and management. By investing in index funds or ETFs, which track a specific market index, you can benefit from lower fees while still achieving broad diversification.
In addition to diversifying your investments, it's important to regularly review and rebalance your portfolio to ensure that it remains aligned with your financial goals and risk tolerance. By periodically adjusting your asset allocation, you can further optimize your portfolio for both performance and cost efficiency.
Ultimately, the cost conscious investor understands the importance of diversification in reducing fees with their wealth manager. By implementing these strategies, you can build a well diversified portfolio that not only helps to protect your investments from market volatility but also minimizes the fees you pay, allowing you to keep more of your hard earned money working for you.