Wednesday, May 28, 2008

Educate thyself, part 5: Quest for inexpensive investing

In the early 2000's I had an account with one of the big brokerage houses (now gobbled up by even bigger brokerage house). It was a full-service brokerage. I could not trade by just clicking a mouse. The problem was that my significant other was working for that brokerage house, and we couldn't have a brokerage account anywhere else due to "compliance".I had to call my broker and ask him to buy or sell something for me. Usual cost of such 30-sec. conversation was $49-$53. Not that he did anything special. He would just say: "Lemme see what the ask is..." and then declared that he "put it in". That was it. He never bothered me with his sales pitches, probably because I had a minuscule account balance. But even back then I wasn't that naive to think that this broker thinks about my financial well-being first before his own.

Now, immediately after my significant other changed jobs I closed that account and moved whatever was in it into a discount brokerage house ( back then it was Ameritrade). Now the trades were $9.99. Customer service was bad, transaction cost was much better but still way too high for regular investing. I was still better off just having an account with, say, Vanguard or T. Rowe Price and buy an broad-based index fund a little bit at a time without having to pay for a transaction (those big mutual fund companies even provide postage-paid envelopes for those sending their contributions in form of checks). So I was going the mutual fund way for a while.Then I learned about ShareBuilder. It allowed you to buy regularly for about $4 per buy. ( and I think, more for sells).Better, I thought, but for some reason I didn't open an account with them.

The real opportunity came when Wells Fargo announced ( about 2 years ago) that if you hold $25,000 in combined assets with them (even including 10% of your outstanding mortgage), then they'll give you 100 trades per year free through their so-called PMA account. They also waived the IRA custodial fees and the yearly fees for maintaining the HELOC with them.Yea, that's what I'm talking about. Now I could buy very inexpensive index ETF's for free!
Then bank of America started offering something similar. Also, there's this Zecco website-they also give free trades. Now I minimized my investment expenses as much as I could. Good.


Marianas Eye said...

If you have a chance, take a look at the book, Rule #1 Investing. Rule #1 is "Don't Lose Money." I wish I'd read this years ago. It might not change anything you're already doing, but it helps you understand how the great ones do it safely.

The Independent Urologist said...

Hey, great blog. Our blogs have a similar bent--the business side of medicine over the whining medicine blogs or the medicine medicine blogs. Nice job. I plan to read it all.

Docblogger said...

Thank you for suggestion-will read that book
Also, on the subject of Vanguard being the cheapest-yes, and their ETFs are even cheaper than their mutual funds.

The Independent Urologist-

Thank you for your kind words,
And you're right-the business/ money aspect of our professional lives is neglected on all the medical blogs.
And you have 2 blogs-wow!