Even if our employers pitch in a little, this prospect can be, in a word, scary. People who may have paid little attention to investing now face the challenge of educating themselves or engaging a financial adviser. Somehow, they must find the time to learn about the costs, fees and taxes associated with investments.

This may seem a daunting task, yet it can be done. You can acquire enough information and expertise to become the most important player in your financial future. The first step along this path is to formulate your goals. Only after you set your objectives can you effectively select the appropriate investment vehicles. As part of the selection process, it’s critical to understand the costs associated with the wide variety of investment structures and products. Here’s a look at some of the costs you may encounter.

Account Service Fees

These are charged when you establish an account or make a request within an account. They may include the costs involved in opening an account, inactivity fees, annual maintenance fees, retirement account fees, wire fees, termination fees. These are typical fees, and there may be others. Some institutions assess a fee any time you make a request related to your account.

Financial institutions set these fees themselves, so the range is broad. Before you establish a relationship with an institution, it’s wise to explore the fees associated with your projected needs. If you know the fees up front, you won’t be blindsided down the road.

Transaction Fees

When you make an investment or change one within your account, it usually triggers a transaction fee. Your financial institution charges this fee to cover the administrative costs associated with executing your transaction. The size of the fee depends on the investment type. Sell a stock and you’ll be assessed a certain fee. Buy a bond and the fee may be different. The same is true for mutual funds, exchange-traded funds, options and other fixed-income investments. As with account service fees, if you understand the types of investment products you’re interested in owning and the frequency with which you expect to be trading, you’ll be well positioned to select an appropriate financial institution.

Commissions

You pay commissions to your financial institution for their role in the purchase or sale of a security. (Commissions are separate from transaction fees; you may be charged both.) Commissions help cover other costs, especially those related to sales and marketing, incurred by your institution. As a rule, the more service and sales support you receive from a financial institution, the higher the commission. Discount brokerages which provide a lower level of sales support may offer reduced commission schedules.

In the area of mutual funds, commissions are known as sales charges or "loads." The Securities and Exchange Commission (SEC) defines a sales charge as "the amount that investors pay when they purchase (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission. The SEC’s rules do not limit the size of sales loads a fund may charge, but NASD rules state that mutual fund sales loads cannot exceed 8.5 percent and must be even lower depending on other fees and charges assessed.

Some mutual funds charge no load. According to the SEC, a no-load fund is a fund that does not charge any type of sales load. But not every type of shareholder fee is a "sales load," and a no-load fund may charge fees that are not sales loads. No-load funds also charge operating expenses. In other words, even a no-load fund can charge you fees based on its operating expenses; these typically are included in the "expense ratio" of the fund. The SEC defines expense ratio as "the fund’s total annual operating expenses (including management fees, distribution (12b-1) fees, and other expenses) expressed as a percentage of average net assets."

If you have your eye on a mutual fund, you must consider both the load and expense-related fees to get a feel for the true costs to you. This can be tricky because the charges aren’t always as transparent as we might like. Many times, fees associated with packaged products, such as mutual funds and exchange-traded funds, are difficult to discern because they’re calculated prior to the reporting of the net asset value. Be sure to consider internal costs passed along to you. If you don’t, you won’t get an accurate picture of your investment performance.

All funds present risks, which are described in their prospectus or offering statement and which should be considered when reviewing a fund’s performance. Be sure to read each fund’s prospectus or offering statement before making any investment decisions. Past performance does not guarantee future results. The investment return and principal will fluctuate so that, upon redemption, shares may be worth more or less than their original cost. Go to the fund’s web site or contact the fund directly for performance current to the most recent month-end. All performance reflects deduction of the fund’s maximum sales charge. Other fees and expenses apply to continued investment in load and load-waived funds and are described in the fund’s current prospectus.

Investment Management Fees

When you engage a registered investment adviser to manage your assets, you may compensate that professional through investment management fees. Terms usually are specified in an investment management agreement.

Some investment advisors deploy sub-advisers – experts in certain asset categories – to assure that your portfolio is diversified. In such cases, the master agreement will detail fees charged by the sub-advisers. Sub-advisers can be helpful – and less expensive than some mutual funds. Their fees are transparent to the investor, whereas mutual fund expenses are deducted prior to the calculation of net asset value.

Consulting Fees

Beyond management fees, some financial advisers charge consulting fees for wealth management services and portfolio design. These are structured as comprehensive services that address such issues as protection, preservation, accumulation and transfer of wealth in the most cost-effective and tax-efficient manner. Advisers work closely with their clients to help them establish clearly defined goals and a game plan that often includes insurance, education planning, retirement planning and tax planning.

You may not require these services now, but you may find them more relevant as your portfolio grows. Just remember to factor in the costs when measuring portfolio performance.

Taxes

Are your investments enhancing your bottom line? You can’t answer that question with any degree of confidence unless you’re familiar with the tax consequences of each investment. Dividends, interest, trading gains and losses, capital gains distribution –all must be factored in when determining how much money your portfolio has made for you.

Understanding the tax implications of your investments will help you make solid decisions. For example, let’s suppose you’re pondering CDs and tax-free municipal bonds. Which should it be? The tax ramifications of each are different, so the answer depends in part on your current tax bracket. Crunch the numbers and you’ll make the best decision for you.

To be sure, getting a handle on all these costs takes time and focus. For help, many investors turn to financial advisers. This usually is a sound step but not without its irony, as engaging a financial adviser will generate another cost: the adviser’s compensation.

Typically, your adviser’s compensation structure will fall into one of three categories: fee-only; fee-based, or commission-based. A fee-only adviser charges a flat fee or hourly consulting fee for services and generally does not earn commissions or management fees. With a fee-only approach, you can be reasonably confident that the adviser is providing objective advice. Fee-based advisers may charge consulting fees but retain the opportunity to earn additional compensation via commissions and management fees. Commission-based advisers receive their compensation through commissions when products are bought and sold.

Which structure is best for you? Base your adviser selection on the involvement you expect to have in the process and your comfort level with the adviser. Whatever the compensation arrangement, be sure to ask questions about account service fees, transaction fees and taxes. Then subtract all these charges from your investment returns to determine the success of your portfolio.

In fact, I work with my clients to develop a checklist of costs associated with each investment. This is more than a mental exercise; we write down the costs and compare them to returns, or hypothetical projections based on past performance. This helps us avoid assets that may have the potential of above average returns but have crippling internal costs. When the costs and returns are right there, in black and white, on a single sheet of paper in your hand, you know you’re ready to take control.