Reducing Trading Costs in Large Accounts

For investors with sizable portfolios, trading costs can add up quickly and make a meaningful difference in long-term returns. Even small fees and commissions, when applied to frequent or large trades, can eat into gains over time. Understanding the true cost of buying and selling investments is an important part of managing a large account.

There are ways to help reduce these expenses, such as comparing brokerage fees, considering the impact of bid-ask spreads, and being mindful of how often you trade. Working with an experienced advisor can also help you develop a strategy that keeps costs in check while supporting your investment goals. By staying informed and proactive, you can help ensure that more of your portfolio’s growth stays working for you.

Why Trading Costs Matter

In sizable portfolios, every trade has a ripple effect. A 0.2% trading cost on a $5M account translates to $10,000—per transaction cycle. Overtrading, poor execution timing, and inefficient order placement can snowball into substantial performance leakage. According to a 2023 Vanguard study, minimizing trading costs can add 0.5%–0.75% in annualized returns, especially in actively managed portfolios.

Source: Vanguard – Trading Cost Efficiency

Case Study: Cutting Costs in a Large Portfolio

An investor with a large, diversified account noticed that frequent and unnecessary trades were resulting in significant annual expenses. By shifting to a more disciplined and thoughtful trading approach, they were able to substantially reduce trading costs while still maintaining a balanced investment strategy. This change not only saved a meaningful amount each year, but also helped ensure that more of the portfolio’s growth was preserved for the future.

Key Strategies to Reduce Trading Costs

• Choose Cost-Effective Platforms
  Select custodians or trading platforms that offer competitive commissions and efficient execution, especially for large accounts.
  
• Batch and Strategize Trades
  Combine transactions when possible and avoid unnecessary small trades. Executing trades during periods of high market activity can also help reduce costs and improve outcomes.
  
• Limit Unnecessary Turnover
  Focus on long-term investment strategies and avoid frequent trading. Only make portfolio changes when they are truly needed to stay aligned with your goals.

Taking these steps can help keep trading expenses down and allow more of your portfolio’s growth to work for you over time.

Actionable Tips for Investors

• Consider using investment vehicles that offer high liquidity and low trading costs, such as exchange-traded funds (ETFs), to help keep expenses down.
  
  
• When placing trades, using limit orders can provide more control over execution prices, which is especially important for larger transactions.
  
  
• Think about the tax impact of your trades. When possible, executing trades in tax-advantaged accounts may help reduce taxable events.

Ron McCoy’s Expert Perspective

Drawing on decades of market experience, Ron McCoy believes in using a disciplined approach and the latest tools to help clients manage trading costs. By focusing on efficient execution and keeping unnecessary fees to a minimum, his goal is to help clients keep more of their capital invested and working toward their financial goals.