UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev | Next
Author: pschaaf42 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1107  
Subject: Re: Thoughts on full-service brokerages Date: 10/10/2007 9:05 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
"My former firm taught people to tell customers that the commission generally runs about 2.5 percent for an equity investment. So, for a relatively small equity trade of $10,000, you will pay about $250."

IMO, the only reason some people are willing to pay ridiculous fees like that is because all the advertising the big brokerages pump out convinces people that the "pros" are going to help them beat the market. Almost none of them do even before fees. After fees I'd be surprised if 1 broker out of 1000 beats the market. Is he helping you get into an investment that you couldn't buy on your own for $10 at a discount broker? For a 2.5% fee I'd be demanding that they refund all fees unless I get returns of greater than 15% on a consistent basis. If they won't do that then it's a ripoff.

My commissions range from a max of about 0.2% for a small $5,000 trade to a low of about 0.01% for a $100,000 trade with a flat commission of $10. A few dollars more or less for a flat fee are easily overlooked based on how well you like the trading platform, research, execution times, etc but I'd say anything above a flat $20 per trade is just throwing your money away. Even at a discount broker you're shooting yourself in the foot if you're making tiny little trades at $10 a pop. A $10 flat fee is still a 2% commission if you're making a $500 trade... I'd recommend never making a trade smaller than $2500.

If you're the type that doesn't want to have to think about your investments, just pick about 3 or 4 index funds with low fees and good track records covering a diverse mix of investments, split your account up across these funds, and don't worry about it anymore. My 401k is evenly split between an S&P 500 index fund, a Russel 2000 small cap index fund, and an East Asia index fund. The East asia fund was the only option for foreign investments and I wanted some exposure to non US investments. I'm consistently getting about 9-12% per year (not counting the company match) with very little volatility and almost zero effort involved. I check it about twice a year to tweak my contribution levels so I'll hit the cap with my last paycheck of the year.

My other accounts I manage myself and average more like 20-50% per year but that requires a lot more research, a lot more trading, a lot more risk, and involves a lot more volatility. My more conservative 401k allows me to sleep at night when my other account suddenly drops by 20% or more in a bad month. It also gives me the courage to "double down" when the blood is running in the streets. That second part is what provides most of the outperformance for my second account.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev | Next

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Smuggling Rice and Garlic
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement