What does it cost to invest in the stock market?

This is a common question I have been asked, whether when I wasworking as a financial advisor or now when people come to me withfinancial questions. The answer is "It depends." There are essentially four different standard ways to invest your money: mutual funds, index funds, managed accounts (which usually require anywhere from $50,000-$100,000) and individual stocks. We will explain each one more in depth to break down how the fees are calculated. We will wrap it up with an explanation of how our fee is broken down and calculated.

Mutual funds are probably something we are all most familiar with.These are funds that are made up of a large number of stocks. Mostcontain anywhere from 50-200 stocks in their portfolio. They have aportfolio manager that oversees what the fund invests in. He is very pivotal to the success of the fund. There are two types of mutual funds: no-load funds and load funds. A no-load fund is a mutual fund in which there is only a trading fee to invest your money. If you invest into it by yourself the fee will be whatever your online broker charges you. I know Scottrade charges $7 a trade, so this is fairly inexpensive. Yearly they have a maintenance charge, the average of which is around 1.25-1.5%. As for load mutual funds,they operate the same way. The only exception is they charge an up-front commission percentage of what you invest. Typically, from what I have seen, it is between 4.5-5%. These initially cut into your current investment, thus, limiting what you get invested and hampering yourreturns. It should also be pointed out, that according to John C.Bogle, founder of Vanguard, even in a bull market, only 1 out of 6mutual funds beat the overall market. Even still, only 1 out of 21 ofthese funds beat it by a 1.5% margin, which would cover the yearly feethey charge you. So you are going to be trusting your own knowledge toget yourself into a fund that outperforms the market by at least 1.5%to ensure you are beating the average of the market as a whole, or youwill be trusting your financial advisor to make that selection foryou. Reference http://finance.yahoo.com/funds/how_to_choose/article/100583/The_Disappointing_Reality_of_Funds_That_Beat_the_Marketor Common Sense on Mutual Funds: New Imperatives for the IntelligentInvestor,by John C. Bogle, published by John Wiley & Sons (© 2000)

Index funds are funds that try to trace a certain benchmark or indexsuch as the S&P 500 (typically), the Dow, the NASDAQ or any otherbroad market return. These index funds can either be a loaded fund ora no-load fund just like mutual funds. They basically are a fund thatholds the same companies that their benchmark or index does and doestheir best to trace it. Their only job is to make sure to get as close to it as possible, not beat it or trail it. The maintanence fee can be as inexpensive as.18%. Since they do not try to beat the market, you will typically be fractionally below the market as a whole.

Managed funds (if you have the minimum to get into them) are a group of investors that use your money to "build your own mutual fund." Thismeans, they essentially take the money you have invested and buystocks for you to make sure you have a diversified portfolio. From my experience, these have done better, although I have no hard facts toback it up. Because you have professionals actively managing yourmoney, they will charge you a certain percentage a year to manage it.Since you cannot look these up, from the people I have talked to who are in them report a range anywhere from 1.5-2.5% a year, typically with no initial fee get into it. Also, from my experience, about half beat theS&P on a consistent basis and very few have beat it to the point it has covered its yearly fee.

The last of your common selections are individual stocks. You can either invest in them on your own at the per trade rate mentioned above or have your financial advisor do it for you. This means you aredeciding for yourself which stocks you feel are going to out performthe market or you are trusting your financial advisor to make thoseselections for you. From my experience, it costs anywhere from $22-$55for your broker to buy a stock. Let me break that down for you in percentages. If you invest $10,000 into a single stock, you would bepaying anywhere from .22-.55% per stock trade. If you invested $1,000into a single stock it would sky rocket to 2.2-5.5% per stock trade. Once again you would be relying on your own, or your broker's knowledge of stocks that would outperform the market average.

Parnassah Investments does a very simple way of calculating our fee.Over the course of the year we charge a 1.25% fee. This is broken upquarterly, meaning every quarter we will charge .3125%. This is calculated by your investment into our fund averaged between your amount invested at the beginning of the quarter and at the quarter'send. It can either be taken out of your investment, or a check can be made out to Parnassah Investments for your convenience. This way you can ensure the money you designated to be put to use investing in thestock market can stay there and keep working for you. Our fund'sobjective is to outperform the S&P 500. Currently we have outperformedthe market by 18.1% (last quarter), outperformed by 2.3% (quarter 42008), underperformed by .05% (quarter 3 2008), outperformed by 4.45%(combined quarter 2 and quarter 1 2008) and since inception we haveoutperformed by 21.89%.

There are a few other points that need to be made before concluding this post. Mutual funds and index funds typically have a minimum that can be invested into their funds. My guess from checking around is about $2,000. Subsaquent investments require a minimum of around $500. With Parnassah Investments there are no minimums or minimum subsequent investments.That is what makes investing with trusted friends and collegues such a perk. Another reason for the shortfall of mutual funds is their size. There are certain restrictions on how much they can invest into a certain stock. Thus, limiting their ability to outperform theirindexes. Investing with a smaller fund and one with no percentage restrictions into stocks can maximize your profits in which others cannot due to their size. Successful funds starting out end up fizzling because of the money they attract, which ultimately limits their ability to capitalize on their earning potential. These are just some things I hope you consider before you invest.