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Subject:  Re: Brokers, Cribbage, & Mosquitoes Date:  7/6/2006  10:08 AM
Author:  markr33 Number:  17397 of 36670

On this subject, I had an opportunity today to compare the quotes of Vanguard & TDA on the 20-year TIPS.

On the buy side (that was all I looked at), the "hidden" markup was $6 a bond. Adding $5/bond commission ($40 min), that's $11 per $900 bond, or roughly 1.2%.

Vanguard charges $0.75 per $1,000 face value ($40 min, $75 max).

So, for my normal purchase size of roughly 15 bonds, TDA costs me $6/bond extra (about 0.06%).

I think that would be 0.6% (or [6/1000] * 100 percent).

Not too bad, but not that great, either. (Not to mention, the last time I bought some from TDW, it took several hours to get a full, by which time the market had moved quite a bit against me. Coincidence? When I complained, I was told it was a very illiquid market ... but they adjusted the price as a courtesy.)

"Not to bad" is very subjective. I pay $8 for a stock trade, and when I purchased 1000 units of ISM at 22-something, I paid roughly 0.036% in commissions for that purchase. But if I were to purchase 22 SLM CPI-linked bonds (an almost exactly equivalent investment), I would pay (at $5 per bond) 0.5% in commissions, or nearly 14 times as much (and that is without accounting for any spreads, which are higher for bonds than stocks as well)!

To me, 14 times as much is more than outrageous. I think the bond brokers and market makers are ripping us off.
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