One thing that chaps my butt in the investing world is paying fees just to buy something.
On the one hand, I do understand it costs something to brokerage the transaction. On the other hand, it just sits very badly with me to pay someone else to hold my money. They should be paying me, not the other way around. The way I look at it, the people offering these investments should be sucking up these costs and not me because that's just how greedy I am. I think they should let me sell it for free too. Yes I am a cheapskate.
For the stock portion, I've seen recently that ETFs that would work are now comission free at Fidelity and Vanguard. The only barrier to entry seems to be account minimums, which are wholly reasonable for either of them actually. Of course forever now I've been buying index funds at no cost in my IRA, so this isn't really new, and even in a taxable account it's not an issue if you open the account for the fund you want in the appropriate venue. So it seems this is simple enough. I've never paid a dime on buying the stock portion of the PP. Note I keep the stocks in tax advantaged space.
The bonds portion seems tricky to me. While I've gone with TLT and just bite the bullet and pay the $4 for each ETF order and comissions to buy and sell individual bonds seem universal. TD lets you buy the bonds directly at no cost, but their option for selling them seems expensive, so I'm not sure what the best deal is here. Again, I keep this in tax advantaged space (a Sharebuilder IRA with nothing but TLT in it) so TD is kind of useless here in that regard.
I realize SB's $4 trades have certain limitations, but I do not care. I think it makes no difference with the PP strategy, which is really agnostic to whatever prices are when you're buying in. In fact by design at least one component will always be "overvalued".
Gold's also sticky. You can't buy it physically without paying markups, fees, shipping etc. Well you can avoid shipping but you seem to have to buy several ounces at a time, but that just seems like hassle to me so I do an ETF. That of course has its own problems. I don't bother tax sheltering gold at all.
Cash is easy, I use a simple savings account and I bonds, trying to keep it 50/50, and never have to pay a cent.
I try to let money pile up in the cash portion until I have enough to buy what I consider to be a "worthwhile" quantity of bond and/or gold ETFs to keep from paying the fees so often. I'm generally safe as it just happens to tend that once my cash reaches the upper bounds of the 15%-35%, rebalancing band, I can buy a quantity I feel okay with and the cash afterward stays at 15% or better. But I'm almost never perfectly 25/25/25/25 balanced as I loathe to pay comissions to buy or sell. I figure once the total balance gets bigger the effects won't seem as jarring, but even then I'm afraid I'll just increase the amounts at which I'm willing to pay for a trade and I will always be out of perfect balance.
I wish dearly I could just buy VTI or comparable mutual fund, TLT or individual bonds, GLD, and hold cash in I bonds all in one account for no costs with the stock and bond portions in the tax advantaged space, but alas no such "super account" exists. I suppose I should stop being a cheapskate and be happy I only pay comissions on two of the four.
But I just so hate fees of any kind. Fees for buying, selling, stopping a check, having a certain balance, etc. all bother me even if I don't pay them. I'm happy enough to consent to electronic record keeping to avoid fees, but dang it there's got to be a line in the sand somewhere as to what they can force me to give up so I don't have to pay. I try to be a good consumer and use the lowest cost options I can for the sake of everyone even if I don't have to pay a certain fee myself. It's a little sappy sure but I believe we vote with our dollars.
On Being a Commissions and Fees Cheapskate
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pplooker
On Being a Commissions and Fees Cheapskate
Last edited by pplooker on Tue May 11, 2010 11:28 am, edited 1 time in total.
Re: On Being a Commissions and Fees Cheapskate
The big one-stop-shop brokerages tend to have commission-free ways of trading in three of the four assets:
stocks: an index mutual fund or commission-free ETF
bonds: individual treasury bonds
cash: money market fund, short term treasury fund, commission-free ETF, or individual bills/CDs
This is true of Fidelity and Schwab, at least. Vanguard is either free or very cheap on individual treasury bond trades.
Remember that any kind of transaction costs money, so if you aren't paying a per-transaction fee directly, you're paying for transaction overhead somewhere else. In the case of mutual funds, you pay a slightly higher expense ratio than you would with a comparable ETF. For individual bonds, it's the invisible markup/markdown added by the broker. There's always friction in any motion.
The permanent portfolio has you trading very infrequently, so it is often cheaper to bite the bullet and pay the transaction fees, than it is to pay extra overhead for the option of avoiding fees. If you rebalance once per year, you are trading each asset class at most once per year, probably fewer. Four $8 commissions is $36/year, which is a small sum compared to other household expenses. For a point of comparison, a measly 10 basis points on $50,000 is $50/year, and most investors don't blink at 10 basis points.
stocks: an index mutual fund or commission-free ETF
bonds: individual treasury bonds
cash: money market fund, short term treasury fund, commission-free ETF, or individual bills/CDs
This is true of Fidelity and Schwab, at least. Vanguard is either free or very cheap on individual treasury bond trades.
Remember that any kind of transaction costs money, so if you aren't paying a per-transaction fee directly, you're paying for transaction overhead somewhere else. In the case of mutual funds, you pay a slightly higher expense ratio than you would with a comparable ETF. For individual bonds, it's the invisible markup/markdown added by the broker. There's always friction in any motion.
The permanent portfolio has you trading very infrequently, so it is often cheaper to bite the bullet and pay the transaction fees, than it is to pay extra overhead for the option of avoiding fees. If you rebalance once per year, you are trading each asset class at most once per year, probably fewer. Four $8 commissions is $36/year, which is a small sum compared to other household expenses. For a point of comparison, a measly 10 basis points on $50,000 is $50/year, and most investors don't blink at 10 basis points.
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pplooker
Re: On Being a Commissions and Fees Cheapskate
Excellent points. It is hard for me, emotionally, to reconcile myself to the very solid cognitive understanding I have that financial products and investments cost somebody something somewhere.
Re: On Being a Commissions and Fees Cheapskate
[email]www.foliofn.com[/email]
Is an interesting place that I use. It has unlimited window trades for all accounts in your name but you pay $290 per year which admittedly is quite high. There is also a $25 fee for IRA's. The thing I like about it is that you can build your own mutual fund, that they call a Folio, and then put in a single order to rebalance or buy/sell. It will buy/sell to match your target weights that you have set. They also deal in fractional shares.
I am accumulating, so pay in money regularly. Looking at my account I made about 44 window trades so far this year but each window trade may include 5 - 10 securities (my stock portion of index funds) so some where around 300 - 400 individual trades (mainly buys) I guess.
phil
Is an interesting place that I use. It has unlimited window trades for all accounts in your name but you pay $290 per year which admittedly is quite high. There is also a $25 fee for IRA's. The thing I like about it is that you can build your own mutual fund, that they call a Folio, and then put in a single order to rebalance or buy/sell. It will buy/sell to match your target weights that you have set. They also deal in fractional shares.
I am accumulating, so pay in money regularly. Looking at my account I made about 44 window trades so far this year but each window trade may include 5 - 10 securities (my stock portion of index funds) so some where around 300 - 400 individual trades (mainly buys) I guess.
phil