Zecco Trading announced on Friday via e-mail that they will be raising the minimum requirements to receive free trades on their accounts starting next month. Thanks to everyone who also alerted me.

Dear Zecco Trading client,

I’m writing to tell you that as of March 1st, 2009, we’re increasing the minimum level of assets needed to earn 10 free trades per month to $25,000. We’re also adding a new way to get free trades: customers who make at least 25 total trades per month will also qualify for 10 free stock trades per month.

Bummer! The change is blamed on current economic conditions, which is understandable, but also I fear for their community model. Their vibe up until now has seemed to include a lot of younger investors who are just starting out. $25,000 is a pretty high hurdle.

The upside is that since their last fee schedule change, their customer service and website has indeed improved over time. I just feel like they are split between customers like me who just want a bare-bones free system, and those who want “the kitchen sink” and free trades. I guess the latter isn’t realistic.

So now what?

Exploring Staying With Zecco

Small balances. If you trade less than 25 times per month, you pay $4.50 per trade. Still small, but not free. 🙁 If you make 25 trades per month at $4.50, but get 10 of them free, that works out to an average of $2.70 per trades. This isn’t the worse deal out there, but at this price point there are closer competitors now (see below).

Move assets over. The $25,000 applies to net assets. So if you have $25,000 in ETFs or other stocks in another brokerage that are idle, you could move it over and just leave it at Zecco to qualify for the free trades. One possible idea is to invest in a short-term bond ETF like PVI to maintain the minimum.

Exit Plan Options

Liquidate and close out your zero balance account. To avoid the $50 ACAT transfer-out fee for moving your entire Zecco portfolio somewhere else, you can sell all your positions, transfer out the cash, and then have them close the account. During February you’ll still get 10 free trades if you reach a $2,500 net asset balance anytime during the month. You may have to worry about realized tax gains and/or losses with this method.

Transfer to another brokerage with fee rebates. Several other brokers offer a rebate of the ACAT transfer fee if you move enough assets to their brokerage. Unfortunately, most brokers that I have found set the minimum transfer amount to be of $25,000 in assets (FirsTrade, SogoTrade, Scottrade).

However, TradeKing brokerage will credit your transfer fees if you move just $2,500+ over to them. They offer $4.95 trades with no minimum balance requirement. For more details, see my TradeKing review here.

TradeKing will credit your account transfer fees up to $150 charged by another brokerage firm when completing an account transfer for $2,500 or more. Offer applies to new non retirement accounts funding for the first time.

Other Deep Discount Alternatives
Here are some more brokers with rock-bottom commissions. Rates are for non-IRA accounts.

Wellstrade, the brokerage arm of Wells Fargo, offers 100 free trades per year if you have a net asset balance of $25,000. However, you’ll have to open up a PMA checking account and keep some activity going in their every month or so. If you don’t, they’ll close the checking account and you’ll lose the 100 free trades.

Just2Trade offers $2.50 trades with a $2,500 minimum account balance. It is targeted at “experienced investors”. To get approved for an account, you need to state that you have 2+ years of investing experience and know how to use margin, amongst other things. Electronic statements are free, paper ones are $5 per month.

SogoTrade has $3 trades with a $500 minimum. Electronic statements are free, paper ones are $5 per month.

Of course, low commissions shouldn’t be the only consideration for a brokerage firm, it just depends on what you are looking for. I may need to move my “fun money” account elsewhere now.

Stumbled across another interesting chart from Fidelity Investments showing stock market performance during and after previous recessions:

Found via the Financial Philosopher, who stated:

Now that we are “officially” in a Recession, what does that mean for stocks going forward?

Of course, no one really knows the answer to that question, and I certainly will not attempt to do so here. What some of you may not know, however, is that, once the “recession call” is made, stocks have historically been quite close to a significant march upward.

The reason for this is that economists look backward and investors look forward.

I have no idea if this will hold true, but according to the National Bureau of Economic Research, this current recession began in December 2007.

Larry Swedroe, principal of an asset management company and investment book author, also posted his Lessons That 2008 Taught Us In 2008 on SeekingAlpha. It was a nice compilation that covered a variety of topics from active management to Madoff to your “Plan B”.

Here are some excerpts of a few lessons involving investing and your portfolio:

Don’t forget that companies that managed money themselves were often the victims this year!

Lesson 1: Neither investment banks nor other active managers (including hedge funds) can protect investors from bear markets. […]

If their money managers could protect you, why did firms like Lehman Brothers and Bear Stearns go belly up and Merrill Lynch have to be rescued by Bank of America? It is in the best interest of these firms to manage their risks well. Yet, they have clearly demonstrated that they cannot. As evidence of their lack of ability to forecast events consider that in 2008 Lehman spent $751 million buying back its own stock at an average price of $49.60 and Merrill Lynch spent $5.27 billion buying back its stock in 2007 at an average price of $84.88.(2)

Lots of other historically renowned and recommended active managers had a bad year as well.

Lesson 6: One of the more persistent myths is that active managers can protect you from bear markets. In 2008, the hardest hit sector was financial stocks. Financials comprise a significant portion of the asset class of value stocks. As benchmarks for the active managers we can use the Vanguard Small Value Index Fund that lost 32.1 percent and the Vanguard (Large) Value Fund that lost 36.0 percent.

The following is a list of the returns of some of the actively managed mutual funds with superstar value managers, four of whom were named by Morningstar in June 2008 as their recommendations to run value superstars, their recommendations (those are noted with *): Legg Mason Value Trust lost 55.1 percent; *Dodge & Cox lost 44.3 percent; Dreman Concentrated Value lost 49.5 percent; *Weitz Value lost 40.7 percent; *Schneider Value lost 55.0 percent; and *Columbia Value and Restructuring lost 47.6 percent.

Of course, some actively managed value funds beat those benchmarks. However, how would you have known ahead of time which ones they would be?

Some did guess this would happen. But was it luck or skill?

Lesson 9: There is a great likelihood that each time there is a crisis, some guru will have forecasted it with amazing accuracy. But that ignores two important facts. The first problem is that even blind squirrels occasionally will find acorns. In other words, there are tens of thousands of gurus making forecasts all the time.

Vacation is over, bring on 2009! Time for a quick look back. Instead of accounting for all my various cashflows, I decided to first review how the individual mutual funds in my investment portfolio did during 2008. (Data taken from Morningstar.) Here are the numbers along with the breakdown by asset class:

Just about every asset class related to equities was in the toilet, especially emerging markets. The bonds held their ground overall. I had a relatively aggressive mix of 85% stocks and 15% bonds, with an overall weighted return of -33.2%.

As a reference, the total return of the Vanguard S&P 500 Index Fund (VFINX) was -37% while the Vanguard Total Bond Market Index Fund (VBMFX) was up 5.1%. The Vanguard Target Retirement 2045 Fund (what I used to own) had a 34.6% drop.

Did I hold too much in stocks? I don’t think so. I’m only 30 years old right now, and if I’m lucky I’ll have potentially another 55 years in the market.

On the other hand, I do think that some retirees and near-retirees held too much stocks. “You need at least 60% in stocks at all time?” *Cringe*. Take the Vanguard Target Retirement Income Fund (VTINX), which is an all-in-one fund with an “asset allocation strategy designed for investors currently in retirement.” For 2008 it dropped only 10.9% with an asset allocation of 5% cash, 30% stocks, and 65% bonds. This is probably more appropriate for people in the withdrawal stage – something to sleep well with!

So, I am stuck trying to resolve two somewhat conflicting feelings. The volatility didn’t really worry me that much this year, and am happy to take some risk right now. But I also know that I don’t want to take risk later. I may need to shift my asset allocation towards more bonds faster than 1% per year, especially if I am going to retire early.

Ah, hedge funds, so sexy with their “rich people only” requirements and secretive investments. I have been catching up on a bunch of news articles about Bernard Madoff, who was recently arrested after admitting that his hedge fund was “all just one big lie” and a “giant Ponzi scheme”, estimated that his investors will lose about $50 billion. If true, this represents the one of the largest cases of investor fraud and definitely largest Ponzi schemes in history. The SEC said it appeared that virtually all of the assets of his hedge fund business were missing. Oops.

According to this NY Times article, lucky investors included J. Ezra Merkin, the chairman of GMAC; Fred Wilpon, the principal owner of the New York Mets; and Norman Braman, who owned the Philadelphia Eagles. Unfortunately, there was also substantial money from several charities and endowments. Finally, throw in a few other hedge funds which did zero original thinking and instead simply invested their money in Madoff’s hedge fund as well.

Mr. Merkin, a prominent philanthropist and the founder of several hedge funds, including one called Ascot Partners, jolted his clients on Thursday with a letter announcing that “substantially all” of that fund’s $1.8 billion in assets were invested with Mr. Madoff.

“These investors were never aware that all of their money was invested with Madoff,” Mr. Susman said. “They are obviously shocked.”

Surprise! I also love the marketing techniques:

Mr. Madoff emphasized secrecy, lending his investment accounts a mysterious allure and sense of exclusivity. The initial marketing often was in the hands of what one source described as “a macher” (the Yiddish term for a big shot). At the country club or another exclusive rendezvous, the macher would brag, “I’ve got my money invested with Madoff and he’s doing really well.” When his listener expressed interest, the macher would reply, “You can’t get in unless you’re invited…but I can probably get you in.” [WSJ]

Sometimes it seems that human nature just dooms us to want to believe in impossibly easy money. If you aren’t familiar, check out this previous post on 12DailyPro (another Ponzi which suckered in a much less wealthy crowd) and a book about life of the original 1920s Charles Ponzi.