No. of Recommendations: 5
Mary,
I too feel that this is akin to a bait and switch. While I understand that B&H must make a profit to survive, I don't feel any obligation to help them out by giving them more of my money for the service if I don't make a trade for a few months. I know a small account is not making them a lot of money- so do they. My thinking is that the customer is always right, whether the economics are infavor of B&H or not. If the market (meaning the majority of their customers) will support their move and folks stay on, then they have succeeded in their business decision and will do fine. But I won't be one of those customers because I do not agree with it.
This monthly rate will erode your gains. The amount of erosion depends upon the amount you are investing. For perspective, I posted a similar post with a table comparing a commission costs to the minimum level you need to invest to keep your transaction rate (i.e., your expense of investing) low. I have repoted this table below.
For some perspective consider this: if you invested $50/month with B&H's new plan, and assuming you trade no more than the two tranactions allowed with the new monthly fee, your transaction cost would be 14%. That means you need 14% returns just to break even, and that is not including any sales of stock (i.e., taxes). Quite a cold reality, IMO.
Transaction cost = $7 / month x 12 months = $84 / year
Investment capital = $50 / month x 12 months =$600 / year
Tranaction Rate (%) = Transaction cost / Investment Capital x 100
= $84 / $600 x 100
= 14%
I plan to do one of the following:
1. Look around for another synthetic DRIP (like B&H) that does not charge a monthly fee (is there still anyone else that offers this?). If I can't find one I like, I will...
2. Start real DRIP with individual companies, where you buy one share of stock and then reinvest every month with minimal commission. The old fashoined way- it still works, but you don't have as many choices.
3. Save my money until I can invest enough from my discount broker to maintain low transaction costs. A table of commssion costs versus what you need to meet minimum transaction rates is below.
Commission Cost Minimum Investment Level to Maintain
Low Transaction Cost Rate*
1% Rate 2% Rate 5% Rate
$3.00 $300 $150 $60
$5.00 $500 $250 $100
$8.00 $800 $400 $160
$10.00 $1,000 $500 $200
$13.00 $1,300 $650 $260
$15.00 $1,500 $750 $300
$20.00 $2,000 $1,000 $400
$40.00 $4,000 $2,000 $800
$50.00 $5,000 $2,500 $1,000
*Min. Invest. Level = Commission Cost / Transaction Rate
I hope this clarifies things for you. Sometimes seeing the numbers really chages your perspective- it has for me.
-Scott (slaramee)
