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The overall goal should be to keep your expenses at <1% or so. So it usually ends up better to go the mutual fund route or some such where you can run at essentially nil or very close to nil expenses month-to-month and collect enough money to make a bigger purchase. Otherwise, you get killed on transaction costs.

Sharebuilder and such start out looking promising but the fine print turned me off from them. They hit you for $16 per trade and their "free" account is $4 per trade on a recurring purchase. On $1000, that amounts to 0.4% but if you split it among multiple purchases or if you ever go to sell, it averages for close to 1% (average of 0.4% and 1.6% is 1%). At that rate, you might as well go for Scottrade where trades both ways are $7 or $8, and you don't have to jump through hoops to get it. Buyandhold has a similar system with somewhat different pricing.

If you're doing strictly mutual funds, my advise would be to ditch the brokerages. Go straight to your choice of Vanguard or Fidelity and start investing. They don't charge transaction fees except when you close down an account and you can hold fractional shares so you can forget about "fractions" and simply invest dollar amounts.

My overall picture is a sort of tiered system.

Bottom tier: Credit card. I don't carry a balance. I just collect the few percentage points of credits for transactions.
Second-tier: Checking account. I haven't converted it to interest carrying and it's probably not worth the effort since the balance never exceeds about $5K-$10K.
Third-tier: Brokerage account. Split into essentially 3 parts.

Part #1: "Emergency reserves". Equal to 6 months salary. This probably excessive but my wife is paranoid so I live with it. All held in short term bonds yielding about 3-5%. Taxable. I looked at the tax savings but our income is still in the threshold between the point where we need to use municipal bonds and such.

Part #2: Taxable "college fund" for my daughters. We looked at 529's but the problem is it assumes that they are going to college. That's hard to say with a 3-year old. Same with ESA's. UGTMA isn't really any better, and in some ways it's worse. We considered putting it all into a Roth and then pulling the cash out at college time but the difference is all semantic and when you work out the details, the tax savings evaporate.

Part #3: IRA & 401K. All tax sheltered stuff.

SO...I simply move it all periodically into the bottom of the third-tier as needed. Then it pools there and periodically I'll sweep it to make a purchase of a few hundred shares.
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