Archive for May, 2007
Enough with the fluffy stuff, how about some firm numbers. Imagine that a young college grad actually has the forethought to even think about what they need for retirement. They check out an online retirement calculator, and see their needed amount is… 5.7 bajillion dollars!1 Shocked, they shake their head, walk away, and promise themselves to revisit it again in a few years… hopefully.
A more attainable goal: You should aim to accumulate double your salary by age 40. Doesn’t that sound more reasonable? This is the solution proposed by this Wall Street Journal article A $1 Million Retirement Fund: How to Get There From Here. (Thanks Don for the tip.) Why double?
Let’s say your salary has hit that $80,000, you have amassed $160,000 in savings, you are socking away 12% of your pretax income each month and your investments earn 6% a year. Over the next 12 months, your $160,000 portfolio would balloon to $179,518, or $19,518 more. Your monthly savings would account for $9,600 of that growth. But the other $9,918 would come from investment gains.
In other words, you’ve got to the crossover point, where the biggest driver of your portfolio’s growth is now investment earnings, not the actual dollars you’re socking away.
My only beef is that the math in the article is a bit vague. First, the article means double your expected salary at age 40, by age 40. Now, is the 6% assumed return supposed to be real or nominal? Are we assuming this is all in a 401(k)? How much inflation-adjusted money will this give you at age 65?
However, the main points remain. Money saved now will be worth a lot more than money saved later. Once you generate a “critical mass” in your retirement funds, they really do seem to gain a life of their own.
The graph on the right shows three investors, each of whom invests just $1,000 a year until age 65. However, one begins at age 25, investing a total of $40,000; one at age 35, investing a total of $30,000;
and one at age 45, investing a total of $20,000. Each earns 7 percent per year and, for purposes of this illustration, the effects of taxes and inflation are ignored.
The result? The early bird ends up with more than double the one who waits until age 35 and more than four times the one who waits until age 45.2
I’ve certainly experienced this. As our own retirement balances have grown, the recent stock gains alone are often thousands of dollars each month. So what are you waiting for? Get started with just $50 per month!
1 Actually if you plugged in 21 years old and $40,000, the goal would be $2,591,000. Still big!
2 Source: Investment Company Institute
Posted in Investing, Retirement | 11 Comments »
It’s graduation time again, and I’ve heard more than my share of cheesy commencement speeches in my life. But here is one by Steve Jobs that I really enjoyed.
Here is the text of the speech as well, but Jobs is a good speaker so I’d recommend listening to it. Here’s the Cliff’s Notes summary:
You have to trust that the dots will somehow connect in your future. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma ? which is living with the results of other people’s thinking. Stay Hungry. Stay Foolish.
Weird fact about me: Even before hearing this speech, I would think about my mortality in order to keep things in perspective during stressful times. It really helps to strip away the fluff, and helps you do scary things like change career directions or ask that pretty girl or boy down the hall out 
Posted in Career | 12 Comments »
Now that Vanguard allows us to waive all their $10 low-balance fees, I need to reconsider my choice in bond funds. But which one? Here’s a my brief and very generalized understanding of bonds, based on my own readings. Please use this only as a starting point for your own research.
Quick Bonds Primer
Bonds are essentially loans, either from government or private companies. In portfolios, they are usually used to reduce the overall volatility because of their low correlation with stocks. When stocks go one way, bonds tend more to go the other (thought not always). This can allow you to lower risk without significantly lowering returns. See this Vanguard illustration.
While there are many different types of bonds - corporate, mortgage-backed, U.S. Government Treasuries, municipal, to name a few - you can break them down into two ways:
Maturity Risk
The longer the loan length, or time until maturity, the more sensitive bond prices are to interest rate fluctuations. Bonds are often grouped into short-term, intermediate-term, and long-term categories. The lender (us) is usually compensated for this extra volatility with higher returns. Another way to measure sensitivity of a bond fund is by looking at the duration. For example, if a bond has a duration of two years, its price would fall about 2% when interest rates rose one percentage point. On the other hand, the bond’s price would rise by about 2% when interest rates fell by one percentage point.
Credit Risk
Just like with consumer loans, the worry is about defaults. The riskier the borrower is, the higher interest they must pay. Given the same maturity length, a junk bond with a low credit rating will pay a higher return than a government-backed Treasury bond. Foreign bonds aren’t very popular, due to the added currency risk and also higher expenses.
Where’s the best risk/reward combination?
Just because as risk goes up, return goes up, doesn’t mean that there is a linear relationship between the two. You want to find the best combination for your portfolio needs.
Read the rest of this entry…
Posted in Investing | 12 Comments »
Some random bits:
- It’s been a while, so I decided to again request automatic credit limit increases on my Citibank and American Express card. Got $3,000 in credit limits with no credit score hit.
- I also saved $10 by getting a free notary public signature from my WaMu Free Checking account. Got a free medallion signature guarantee too, although that’s free at a lot of banks.
- An MSN Money article outlines the perils of automatic bill pay. I don’t like the idea of giving companies permission to take money out of my accounts either. Here’s another horror story. If anything, use credit cards for automatic billing and not checking accounts! I still use paper statements for bills, and electronic statements from most banks and brokerages.
- Madame X graciously hosted this week’s Carnival of Personal Finance.
Posted in General | 22 Comments »
Here’s a nice Reuturs article interviewing Warren Buffett and Charlie Munger shortly after the recent Berkshire Hathaway shareholder meeting.
On index funds and beating the market:
Warren Buffett said on Sunday most investors are better off putting their money in low-cost index funds, though he believes he can still outperform major market indexes.
“A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money,” Buffett said at a press conference, a day after the annual shareholder meeting for his Berkshire Hathaway Inc.
As for Berkshire, which ended March with nearly $90 billion of stock and fixed-income investments, Buffett said “we think we can do better than the S&P. I would be disappointed if our portfolio didn’t do a couple of percentage points better. I would be amazed if it did (much) better.”
I’m not sure if this is Buffett being humble, or he is admitting that beating the S&P by a large margin is getting harder and harder.
On performance chasing:
Charlie Munger, Berkshire’s vice chairman, said at the press conference that many investors actually fare worse in actively managed funds. He said many funds perform well when they’re small, but struggle to keep up when investors chase that early performance, and pour in cash.
“Successful funds attract a massive amount of money, and the later performance typically gets mediocre,” he said. “Then they keep publishing returns for the whole period for someone who started 20 years ago…. The reporting has falsehood and folly in it.”
If I believed in the “Buffett way”, which on some days I do, I would simply buy BRK directly rather than try to replicate or beat his results by trading on my own as a mere mortal.
Posted in Investing | 7 Comments »
Even though this blog is about money, and the source of most people’s money is from their jobs, I don’t really talk about careers that much. One reason for this is because I’m not experienced at the corporate game. I’ve never reached the point in the corporate ladder where I got to boss around others. Why listen to me?
Another reason is that I believe one’s salary is not necessarily related to how smart they are, or even how hard they work. Some people are lucky, in that they love to do something that already makes a lot of money. Maybe they love investment banking, and all the numbers, long hours, and competition that goes with it. Others have tougher decisions. Maybe you like working with under-served populations and being a social worker. However, you’ll also have to accept that living in a penthouse loft with a view is unlikely to happen. I’d love to be the newest host on Globe Trekker, but I don’t think I have the talent for it. I think striking a good balance between these three factors is critical to a happy life:
However, once you do decide on a career path, learn everything you can. This could be via an apprenticeship, graduate school, or on-the-job training. Don’t just sit around and wait for things to happen for you. People making a six figure salary have one thing in common: specialized, in-demand skills. (I bet “people skills” count too.)
Also, I’ve noticed that with couples you can take the balance thing one step further. For example, if one person is happy with a stable professional 9-5 job, that might provide enough stability for the other person to pursue riskier activities like starting their own business or switching careers. Otherwise, the person by themselves may not chose to take that risk, for fear of loss of the sole paycheck or losing group healthcare benefits.
Finally, it’s not what you make, it’s what you keep. Of course, it’s also a lot easier to keep more if you make more. On that note, when late summer comes around, don’t be surprised if our net worth charts show some even bigger increases. We both now have full-time jobs lined up and both of us have the potential to earn annualized incomes in the six-figures. Unfortunately, we are also moving an area with a cost-of-living that is over 30% higher than where we are now, and housing costs that are 300% higher. So I’m not entirely ecstatic. Looking at houses online is even depressing 
Posted in Career | 36 Comments »
Exactly six months ago on November 16th, on a whim I started a Make-A-Goal Experiment. I wanted to encourage people to set a six-month goal for themselves, and follow through with tracking it for six months. I even promised a prize for those that checked in half-way through and at the end of 6-months.
People who made a goal by the 1st prize deadline: 100+
People who checked in at the half way mark: 30+
People who checked in at the end: ???
As I mentioned before, the prize will be a chance at a new, sealed 1 GB iPod Shuffle. Right now the odds are something like 1 in 2, so get your updates in by leaving a comment here with your goal progress! Remember, it’s okay if you didn’t reach the goal, just say how well you did and maybe add an explanation. The deadline is Friday, May 18th, and I’ll figure out the winner over the weekend.
Our Own Goal Update
We reached our goal of reaching $50,000 in cash (saving $12,000 more) in April. We’ll probably reward ourselves with some sort of sugary dessert. 
Time to set another goal!
Posted in Goals | 39 Comments »
I recently received an e-mail that went like this:
“It’s not expenses that matter, it’s total return after expenses. You could charge 1% but if I make you 30% who cares? Why don’t people understand this? I offer my clients superior performance for my fees.”
This irked me. I thought about sending him a few articles about why there’s no proof that any consistent market-beating performance by money managers exists. But instead, I said okay, fine. Here’s an open invitation. I give you my money to manage. You can choose whatever investments you like - mutual funds, individual stocks, whatever.
Instead of a flat fee, you choose the investments, and you get to keep 80% of how much you beat a benchmark portfolio where I try to match your level of risk using index funds. If you fail to beat my portfolio, you must pay me back the difference. So let’s say an advisor would charge 1% of assets. All they would have to do is beat the market consistently by 1.25%, and they’ve got that made already. If they kick butt and beat the market by 5%, they get 4% of assets!
Yes, all the risk here is held by the manager. So what? If you’re so confident you can do better than my portfolio of index funds, put your money where your mouth is. It’s like working for straight commission. You make me more money than my no-brainer portfolio, I make you money. I feel this is much more fair than the current setup, where we pay a relatively fat fee regardless of ensuing performance.
You might be thinking: “But no manager would have enough money to guarantee against that kind of potential loss”
Again, very true. I’d need some collateral to make sure he wouldn’t cut and run. The risk could be mitigated if you could buy some sort of insurance policy to hedge against catastrophic losses. Now, it would probably be expensive, as going back to my original point, as historical statistics show that market-beating performance is unlikely to happen. Maybe Lloyd’s of London is balking, and that’s why I haven’t heard back from him yet…
A more reasonable option?
Although I still wouldn’t buy such a mutual fund, here’s a more reasonable option for actively managed mutual funds. If you fail to beat the relevant index, your expense ratio should be 0%. No need to make people “whole”, but you have to refund all fees taken from the last year. Otherwise, you can earn a pro-rated amount of any market-beating gains with a cap of say, 2%. I know some mutual funds vary their expense ratios slightly based on performance, but none as harshly as this.
Ever wonder why this isn’t how mutual funds are set up?
Posted in Investing | 48 Comments »
If you are making money off of balance transfers or have been considering it, the following observations might be of interest to you. Otherwise, it probably won’t 
The Bad News
A few months ago, Citibank started saying “Balance transfer fees apply with this offer” on certain applications, even though the Terms and Conditions clearly stated that there was still no fee for initial balance transfers. Then, a few weeks afterwards, the longstanding Citi Platinum Select card, which used to offer a sweet deal of 0% APR on purchases and balance transfers for years, all with no fee, was changed a bit. On April 1st, it added a 3% fee with a $250 cap. Ouch! Same deal with the Citi Dividend card.
More recently, on May 1st, Discover stopped offering no-fee balance transfers on all their cards, instead implementing 3% fees with $50 to $75 caps. The Miles Card by Discover still offers 12,000 bonus miles, which is worth $100 in travel credit to offset the fee.
The Good News
Still, there are plenty of Citibank cards that remain which offer 12 months of 0% APR on balance transfers with no initial balance transfer fees:
Of course, I continue to rank what I feel are the best 0% APR balance transfer offers and keep the list updated regularly.
Should I Save Some For Later? (SFL)
Also, if you are concerned about having less 0% APR offers in the future, you can actually “tuck away” one or two of them for later. In the Terms and Conditions for the cards marked “SFL” above, you will see this:
Balance transfer APR: As long as first balance transfer is completed within 12 months from date of account opening, 0.00% for 12 months from date of first balance transfer. After that, XX.XX% variable.
[…]Transaction fee for balance transfers: 3% of the amount of each balance transfer, $5 minimum, $50 maximum. However, there is no fee with the 0.00% APR balance transfer offer described above.
So, you can actually wait 12 months from the date of account opening to start the balance transfer, and then still enjoy 12 months at 0% APR. Some of the cards also offer rewards programs (marked “Rewards” above), which can give you cashback on everything from utilities to restaurants, whatever fits your spending the best.
My feeling is that 0% APR offers overall will stick around as long as interest rates stay stable, but the no-fee offers may continue to dwindle and we might start seeing more and more caps of $50-$75. Losing $50 to $75 of profit from a card worth $500-$1,000 isn’t horrible, but it’s still not happy news.
Got questions? Please read my details series of step-by-step posts on how I and others do this first. Lots of good stuff there!
Posted in Credit Cards, Deals & Offers | 23 Comments »
You’ve probably heard that the average American has over $8,000 of credit card debt. It’s been quoted all over the place. But does that single stat accurately explain the whole picture?
A popular source of this data is CardWeb Inc., which tracks such credit card data. Let’s take their 2002 data, which says that American households had average credit card debt of $8,940. Wow! But look closer. This figure is arrived at by dividing total credit card debt outstanding at the end of 2002 ($750.9 billion) by the number of American households that have at least one credit card (84 million). So not only are you counting balances that will be paid in full within the grace period, you are also only dividing by just the households that have a credit card. There are 21 million families with no credit cards at all.
Instead, I think you should only take the the amount of debt that Americans actually paid interest on, and divide it by all American households. To me, this is a more accurate definition of “average credit card debt per American”. This is $612 billion divided by 105 million, or $5,829 per household. And that’s not all.
Another source of information is the Federal Reserve’s Survey of Consumer Finances (SCF). Here, the 2004 survey found that the average (mean) balance for those carrying a balance was $5,100, but the median was only $2,200. The large difference between the mean and median values indicates that the debt is not spread around equally - a small amount of borrowers have the majority of the debt. In addition, only 46% of families actually carried a balance, and 25% of families don’t even have any credit cards at all.
Now, what is the relationship between debt and income level?
(This is actually based on Cardweb data, but the SCF data is very similar.)Here, we see that as income increases, people are more likely to both use credit cards and also carry higher balances. But from a recent Gallup poll, while the overall debt-to-income ratio among credit card holders is 8.0%, it is over 10% among people earning less than $40,000 a year, and much smaller among people with higher incomes.
Also, I observed that the Federal Reserve total debt numbers are lower than the Cardweb numbers, but the other stats like card ownership and the distribution vs. income are very similar. I suspect that one major reason for this is the self-reported nature of the SCF: People are underestimating their debt due to either denial or embarrassment. So that $2,200 number above may be higher in reality, but still not as high as $5,000 or $9,000.
Summary
On one hand, you cannot refute the fact that credit card debt is indeed a huge problem for many families. Any way you cut it, $612 billion is a big number. And the families with the highest debt-to-income ratios are earning less than $40,000 a year. I think better education and more transparency in credit applications should be implemented.
However, many of the sound bites thrown around about credit cards are very misleading. The majority of households don’t pay any credit card interest at all. None. Zero. Zilch. Of the families that do carry a balance, the median amount owed is in the neighborhood of $2,000-$3,000. Paints a different picture, doesn’t it?
(Yes, people like me who profit from credit card debt probably skew the stats a little tiny bit as well. 
)
References
The idea for this post was taken from an older MSN Money article, which used 2001 data. You can find the 2004 Survey of Consumer Finances here, and the Cardweb data here.
Posted in Credit Cards | 20 Comments »
A mere two days after I ranted about Zecco’s slow opening procedure in the second part of my Zecco Free Trades Brokerage Review, reader Richard alerts me that they have removed the mail-in paperwork requirement for many new applicants. After applying, you now see this:
If you applied for an Individual or Joint account on or after Thursday, May 10th, and you have a US Social Security Number, you?re all set.
However, if you either:
- applied prior to Thursday, May 10th for any account
- applied on or after May 10th, but you were asked to mail your documents
- applied for an IRA account
- do not have a US Social Security number:
please provide your required paperwork.
Hmm… This is either coincidence, or maybe I have some influence after all. Somebody also said that Zecco was swamped with IRA applications near the April 15th deadline, which further slowed things down. Either way, I hope this indicates better things to come!
Posted in Investing | 23 Comments »
I’ve written about Kiva before, but since I loaned some more money out today I thought I’d bring it up again. Kiva.org allows individuals to make loans starting at $25 to low-income entrepreneurs in the developing world, also known as microcredit. By doing so, you can provide affordable working capital for the poor (money to buy a sewing machine, livestock, etc.), empowering them to earn their way out of poverty.
So far I’ve lent money to people in Samoa, Ecuador, Ukraine, and Azerbaijan. Now, even though I’m not earning any interest on the money I loan out, I’ve read that the borrowers do pay interest on the order of 10% or more. However, these rates are still much better than their alternatives from loan sharks, and the interest goes to fund the local operations. You can view the interest “lost” as charity if you’d like. I kind of just see it as lending money to a friend - no interest, but you’re hoping to create some positive change. Payments are handled through PayPal, and they have a 100% repayment rate so far.
Here’s my favorite loan so far:
Vitolina owns a set of beach fales that she rents out to back-packers or picnickers passing through the village and works hard to keep the structures in good condition. Fales are simple, small open huts with thatched roofs built in the style of the traditional Samoan house. Vitolina?s fales are situated on a white sandy beach on the Samoan coast. She readily welcomes guests and provides them with a simple roof, unbeatable views, and home-cooked meals. She will use the loan to renovate the beach fales.
I would certainly pay for that! Now imagine that she makes a profit, builds more huts, and hires other Samoans as employees. She’s now making a self-sustaining living for herself and several other people. I get my money back, and can lend it out again somewhere else across the globe. Beautiful.
Posted in Giving Back | 39 Comments »
Payout instructions for my Emigrant Direct Referral Bonus went out over the last two weeks for those that either sent me their Form #2’s or Claim Form A’s in March. Please let me know if there are any questions.
Emigrant Direct offers an online savings account paying 5.05% APY with no minimum balance requirements, and I have partnered with them to offer a sign-up bonus worth up to $20 if you choose to open an account with them through my specific link. Combine this with the $25 opening bonus from ING Direct and $20 opening bonus from VirtualBank for some quick bucks. Some have minimum opening amounts, but none have ongoing minimum balance requirements or monthly fees, so you can try each one out and just stay with the ones you like.
Posted in Banking, Deals & Offers | 6 Comments »
Continuing on the line of thinking started by my post on What if my bank fails?, the next question might be what if my mutual fund company went bankrupt? I mean, I have a lot of money in Vanguard and Fidelity right now. What happens if one of them “pulls an Enron” or simply runs out of money?
One source of information is this 2004 Money magazine article written shortly after previous mutual fund scandals:
What happens if my fund company fails?
Your money is safe. Under the Investment Company Act of 1940, which governs the industry, each fund is set up as an individual corporate entity, with its own board of directors. Essentially, your fund hires the fund company to manage its assets. If the company were to file for bankruptcy, its creditors would not be able to touch the funds’s assets. And the fund’s directors could immediately hire a new manager, pending shareholder approval.
The way I read this, mutual fund managers are interchangeable. If the fund company goes bankrupt, the assets would remains the same, one would just have to hire a new company to manage it. In addition, one of the features specific to Vanguard is that it is set up as client-owned. How this works is that each of us might own a share of a mutual fund like VFINX. In turn, that mutual fund is a separate entity that contributes money to fund Vanguard’s operations, instead of the other way around. Here is an excerpt from Mel Lindauer of the Diehards forum, which explains this setup well:
First, The Vanguard Group Inc. (VGI) is actually a subsidiary of the various mutual funds, each of which is a separate legal entity. The best way to describe Vanguard’s unique structure would be to think of General Motors turned upside down, with Chevrolet, Cadillac, Oldsmobile, Pontiac, etc. as the corporate parents, and General Motors as a subsidiary. If you think of Chevrolet, Cadillac, Oldsmobile, Pontiac, and the other GM divisions as mutual funds, and General Motors (the subsidiary, in this situation) as Vanguard Group Inc., you’ll get the picture.
Since VGI is actually owned and funded by the various mutual funds, it technically couldn’t go bankrupt unless all of the various mutual funds that support it went bankrupt. The only way that could happen would be for the value of all of the stocks and/or bonds held by each and every individual Vanguard mutual fund to go to zero. So, forget about Vanguard going bankrupt — it just isn’t going to happen.
Some have expressed concerns about putting “all their eggs in one basket” by consolidating their investments at Vanguard. There’s simply no need to worry about that. Each fund is a separate investment company (and part owner of the Vanguard Group, rather than the other way around). Thus, having all of your investments in several Vanguard funds is tantamount to having your investments spread among a variety of baskets, each independent of the other. So, put your fears to rest; your investments are safe at Vanguard.
The Real Question - Ethics and Management
In the end, the real fear that one should have is that their mutual fund management will simply make poor or reckless investment decisions and lose your money perfectly legally. Also, in previous ethics scandals, managers also performed illegal trading or other activities specifically forbidden in their prospectuses. This is why ethics and consistency of management should be a component of why you choose to invest in a mutual fund, and why I feel very comfortable with the majority of my assets in Vanguard index funds.
I have never heard of a mutual fund company going out of business. But I’ve read about a lot of bad mutual funds with horrible performance. And this drop usually happens after a period of great performance and the heavy advertising and money inflows that ensues. Something to think about.
Posted in Investing | 18 Comments »
This is the second part of my review of the Zecco brokerage account. If you haven’t already, please read the first part of this review, where I went over the main draws of Zecco and the account opening process. Here, I will finish up my review of the opening process and also talk about my trading experiences.
Funds Transfer Speed and Experience
I initiated an online funds transfer from the Zecco website early on Tuesday. The funds were taken out of my savings account on Wednesday. The funds appeared in my Zecco account on Thursday and was available for trading. You probably still want to avoid straddling a weekend, but I’ve made two transfers and both took one business day. I’m glad the transfers are prompt.
One thing about the transfer system is that it can be tricky to find your pending transfer request after you submit it. You actually have to search by processing date, which is tedious.
Trading Interface
I am not an active stock trader, so I am not an expert at determining the quality of their real time quotes, options setup, or other such things. I thought the trading interface was fine, and similar to the many other brokers I have used. I just want to buy and sell stocks every so often, not day-trade. A screenshot of the order entry form is on the right.
Trading Experience
What I have done so far is make two test trades of the Vanguard Total Stock Market ETF, symbol VTI.
#1: On Day 1, VTI’s last trade was at 149.23, with a bid of 149.16 and ask price of 149.22. I placed a limit order at 3:39pm to buy just one single share at $149.18. The order was filled six minutes later at $149.16 , 2 cents below my limit amount. (As an aside, a bid/ask spread of 5 cents on a $150 ETF seems very reasonable. More on this later.)
#2: After the market closed on Day 1, I went ahead and placed a sell order on my single share of VTI at my buy price of $149.16. My goal was simply to get my money back. My order was filled right at market open (9:30am) for $149.81. Here is a screenshot from my order history.
I was not charged any commission for either trade, as promised. On the sell order, I was charged a penny for a Section 31 fee. This is a small fee charged by the SEC in order to help fund their overseeing activities, which brokers pass on to us. It’s assessed only when you sell a stock.
What are Section 31 fees and how are they calculated?
The normal calculation for Section 31 fees is $30.70 per $1,000,000 in principle amount on sales. A principle amount of $140 would be subject to a Section 31 fee of $.01.
So I feel my trades were filled successfully and also promptly as the market allowed. There were no indications of shady behavior. For example, with my limit order of $149.16, they could have just given me $149.16 instead of the market price that was $0.65 higher. I would be comfortable using market orders if my goal was to dollar-cost-average into ETFs. Overall, it was pretty cool to be able to trade small amounts and not have to worry about commissions.
Few More Details
» Cost Basis Accounting - They use the FIFO (first-in first-out) method by default on 1099s, and don’t support HIFO (highest-in first-out) on their end. If you want to use HIFO, you’ll have to calculate it manually.
» You get a paper confirmation snail-mailed to you every time you make a trade, which can’t be turned off at this time. This could be a plus or a minus depending on the person.
» Checkwriting and an ATM card is available at an additional cost of $30 annually. I’m not interested, but it’s an option.
» Their reorganization fee of $15 is cheaper than most other brokers I’ve used. Therefore, I also plan to use this account for any future going-private transactions I participate in.
Summary
Overall, Zecco.com fulfills its promise of providing free trades and provides the basic features expected of a legitimate discount broker. My idle cash is even getting 4.38% APY in a money market sweep, which together with the free trades makes the overall cost of this account much less than other discount brokers like Scottrade and Ameritrade (who charge for trades and offer low interest). However, getting the account opened and ready for trading is more difficult than it should be. In other words, the customer service is slower than those same other discount brokers.
The question is simply, is it worth it to you to swap slower customer service for free stock trades? For me, I am definitely keeping this account open, and it is now my primary taxable brokerage account. I have dealt with Penson Financial Services in the past, and I feel they are adequate at their back-end duties. I am not a demanding trader and my balances are not large, so the free trades are simply too enticing. With my personality, paying $5+ for a trade when there is a free option available would nag at me.
Navigation
Zecco Review, Part 1
Zecco Review, Part 2
Posted in Deals & Offers, Investing | 119 Comments »
