Last week’s question and answer

Canada’s oldest corporation, I trace my roots back 335 years, to 1670 and the fur trade. In the 1800s, I converted my trading posts to retail sales shops. I also operated in real estate, selling homesteads to new settlers, and dabbled in shipping, oil and gas, too. My main outlets are Zellers, Home Outfitters, DealsOutlet.ca, and my flagship brand that carries part of my name (which is also a body of water). I satisfy more than two-thirds of the retail needs of Canadians. Headquartered in Toronto, I run more than 500 stores and employ nearly 70,000 people.

Who am I?

(Answer: Hudson’s Bay Co.)

Commission costs

Would you believe that even if you’re paying your brokerage just $8 or $12 in commissions per trade, you might be paying too much? It’s true.

Pay attention to what percentage of your investment your commission cost represents. As an example, imagine that you invest $150 in shares of Porcine Aviation (ticker: PGFLY), and you pay a $12 commission. Divide $12 by $150 and you’ll get 0.08, or 8 percent. That means you’ve invested $150, but at the same time you forfeited nearly a tenth of that value in commissions. If the shares rose 8 percent in the first year, you’d just be breaking even, instead of realizing a significant gain.

The situation gets worse if you’re more of a speculator than an investor, frequently buying and selling. In that case, you might invest the $150, pay $12, and then pay $12 again soon after, when you sell the shares. You’d have forked over $24 on a $150 investment, paying 16 percent of its value. Yikes.

Aim to keep your commission costs at 2 percent or less per trade, or as close to that as possible. If your brokerage charges $12 per trade, then try to invest at least $600 each time you buy stock. ($12 divided by 0.02 equals $600.) If your brokerage charges $20 per trade, your minimum would be $1,000. Instead of plunking $150 into the market at a time, you could save up that money until you have a bigger sum to invest.

If you’re like many people, though, the idea of waiting until you’ve gathered $1,000 is discouraging. Fear not — you have options.

For starters, you can switch to a discount brokerage that charges less per trade. Learn more at www.broker.Fool.com and www.sec.gov/answers /openaccount.htm.

You also can invest small sums regularly through direct investing plans or dividend reinvestment plans (often called “DRIPs”), which permit investors to buy stock directly through companies, bypassing brokerages altogether. Many major companies — even Coca-Cola, General Electric, Procter & Gamble and Wrigley — offer DRIPs.

Learn more about direct investing at www.fool.com/School/DRIPs.htm and www.dripcentral.com.

Managed funds

What are the pros and cons of managed mutual funds, and what is their track record? — B.W., Palm Beach Gardens, Fla.

Often referred to as “actively managed,” managed mutual funds are those invested in securities hand-picked by financial professionals — the managers. They stand in contrast to passively managed funds such as index funds, which simply hold whatever securities are held by the index they track, with little human decision-making involved.

We have long recommended broad-market index funds (such as those based on the S&P 500 or the Wilshire 5000), especially for novice investors. They’re easy to invest in, often have low fees, and over many decades have tended to outperform the vast majority of managed funds. They’re a simple way to achieve better results.

Still, there are some managed mutual funds that leave index funds in the dust — you just have to find them. Be aware that a fund with one great year might underperform for the next 10. So look for funds with low fees, with smart managers whose philosophies you agree with and who have successful long-term track records. Learn more about funds at www.championfunds.fool.com and www.morningstar.com.

Are losses in a 401(k) tax-deductible? — M.G., East Providence, R.I.

Sorry, friend. Losses in a 401(k) are not deductible from year to year. Remember that in general, dollars going into a 401(k) account have not been taxed at all — it’s pre-tax money. When the time comes to withdraw funds from the 401(k), you’ll be taxed on the entire withdrawal, regardless of any gains or losses.

The popped bubble

In the late ’90s, my dad and I tried to get rich quick during the mass hysteria of the dot-com bubble. We knew nothing about the stock market or valuing stocks. We didn’t even know what an income statement looked like. I had saved up around $8,000 at the time, and I bought Dell Computer for around $40 per share. The stock had a bit of bad news not long after I bought it, and my dad was right there to see it live on CNBC. He called me at work in a big panic. The stock kept falling and I sold. The next stock I bought fell from $36 to $8 per share. My broker agreed with my decisions, and why not? She got another $29.50 in commission each time I traded. My $8,000 soon became $3,000. Thanks to the Motley Fool, those days are long past me now, and I have been very profitable in the markets. — G.D., Atlanta

The Fool Responds: Many of us start out investing stupidly. You were smart to keep learning and improving your investing style.