Commission Free ETF Trading
The Dynamic Wealth Report
February 15, 2011
by Corey Williams, Editor
It happened again…
I hit the links with a friend this weekend. You just can’t beat the
beautiful Arizona weather this time of year. Really, it would have been
a sin if I didn’t enjoy the 75 degree temperatures.
Not surprisingly, the golf course was packed. To complete our foursome,
they paired us up with a nice couple on vacation from Chicago.
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I had seen TV clips of the blizzard that blew through most of the
northern US. After watching those, I can’t blame the couple for
escaping to sunny Arizona…
Once we were a few holes into our round, they asked the inevitable
question, “So Corey, what do you do for a living?”
In my experience, most golfers love to talk about the market and
investing. Their ears immediately perk up when they find out I’m a stock
market analyst.
As always, I was happy to talk. I told them I specialize in investing in
ETFs (Exchange Traded Funds). Then they hit me with one of the questions
I hear most often from individual investors…
“Are ETFs better than mutual funds?”
I love this one…
“Yes, ETFs are better than mutual funds.”
Here’s why…
First off, ETFs have smaller expense ratios than mutual funds. In other
words, ETFs are cheaper than mutual funds. That means you get to keep
more of the gains.
And it doesn’t matter if the difference is small.
Over the long run, a mutual fund with just a half percent higher expense
ratio will cost you tens of thousands of dollars. I don’t know about
you, but I prefer keeping more money for myself… I’m not giving it to
some fund manager.
And don’t overlook all the other advantages… tax efficiency,
diversification, liquidity, and investment style purity. The list goes
on and on…
And here’s the best part. A good number of ETFs now trade commission
free!
Simply put, this is the biggest development yet in ETF investing. It
eliminated the one final edge mutual funds held over ETFs.
Let me explain…
Many investors regularly invest small amounts of money. Anyone who has a
401k or self-directed IRA knows what I’m talking about. Every pay period
you contribute a small part of your paycheck to your retirement account.
This is often referred to as dollar cost averaging.
For years, mutual funds held the advantage in this area. They didn’t
charge a commission each time a small amount was invested.
But if you followed a similar strategy with ETFs, you had to pay a
commission each time.
The high cost of commissions made this type of strategy too expensive to
do with ETFs. Who can afford to pay $5 to $20 on every $200 investment? This one huge drawback offset all of the great features of ETFs…
Now, commission free ETFs are available. They’re opening up ETF
investing to a new type of investor. And it won’t be long before ETFs
are the primary investment vehicle in the world.
Where can you trade ETFs commission free?
The first four brokers to offer commission free ETF trades are Fidelity,
Vanguard, Charles Schwab, and TD Ameritrade. So you’ll need a brokerage
account with one of them to take advantage of the free ETF trades.
TD Ameritrade seems to have an edge over the other three firms. They
offer commission free trades on 100 different ETFs.
You can choose from an impressive lineup of 31 equity ETFs, 3 REIT
sector ETFs, 32 bond ETFs, 31 international ETFs, and 4 commodity ETFs.
The way I see it… Commission free ETF trades are the best thing since
sliced bread!
ETFs are far and away better investment vehicles than mutual funds. And
now you can trade them commission free! That’s great news for anyone who
wants to use dollar cost averaging.
The IPO market hits the brakes this week. Masergy Communications (MSGY)
is the only company with plans to IPO this week. A slowdown is typical
for this time of year. We should see activity pick up again in early
March.
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