Maybe new broker Zecco (my review) was right and stock trades really are a commodity now. Today, Bank of America announced that they will be offering 30 free online trades a month for customers with at least $25,000 in combined deposits. Not surprisingly, shares of discount brokerages like E-Trade (ET) and Ameritrade (AMTD) are not doing so hot, both down ~10% today.
It’s only available in the Northeast at first, nationwide later. Thanks to Corey and everyone else for the tip.
Zecco.com has revealed more details about its promise of free stock trades, and is causing a lot of talk for us investors looking for cheap trades.
Details
» Stock Trades – Yes, it’s free and yes, it’s limited. You get up to 10 free market or limit online orders per day, up to 40 per month. After that, they cost $3.50 per trade.
» Mutual Fund Trades – $10 per online trade, no-load only.
» Options – $3.50 plus $.60 per online contract with no minimums
» No minimum to open! (was $2,500)
» No inactivity fees.
» Accounts are SIPC-insured, like most brokerages.
» ACAT fee is $50, not sure whether this means in, out, or both
» IRA accounts available. $30 IRA annual fee and no closing fee.
» Free trading applies only to one account type per person/company. For example, if you open one account for yourself, an IRA, and also a joint account, you can only get free trades one the first of the three accounts opened.
As for how they make money, here is an excerpt I found:
We make our money the old-fashioned way. We earn interest off your money. Hopefully we provide enough value to you as a investor that it’s worth your placing your account with us. This business model has worked for fianncial institutions for about 400 years, it will work for us. It works for most other onine brokerages, too. If you take a spin through Etrade latest 10-K filing, you’ll notice that they make 49% of their revenues from interest. We absorb the minimal clearing fees on a trade as the cost of doing business with you. We also make money on higher margin services like options trades and from advertising on the portal. When we don’t spend $5 of every trade on advertising to get the trade in the first place, we can offer this service at a much more attractive price: FREE. – Sabin Zecco.
Accounts and transactions are done through Penson, one of the largest clearing firms in the country.
By interest they are probably talking mainly about margin interest (which is currently at 10.5%), but I haven’t found any details on interest rates on cash. According to the forums you have the default cash option but can also sign up for a money market sweep account. Another concern that some people have is getting ‘bad fills’, basically not getting the best order routing and therefor the best share price, but it’s hard to find any place that objectively measures this.
As for advertising, they sure are going to get a lot of buzz for this! Only time will tell if it’s enough. My only question now is if they do a hard credit pull when applying. If not, I’m signing up!
Added: I signed up, and there was no hard credit pull for opening an account at Zecco.
I don’t know how long this has been out, but I just noticed in my Scottrade brokerage account that there is a new service called Money Direct that allows you to electronically deposit money from a bank account. Note that I said deposit only, because you can’t use the service to withdraw. What’s up with that? How disappointing.
The service appears to use Yodlee Funds Transfer as the back end, which is similar to the CashEdge service banks like HSBC and Bank of America use. You can basically link any savings or checkings account as long as you have a routing number and account number. Verification is either via website login information or trial deposits.
Here is some more useful info from the Money Direct FAQ:
Q. What is Money Direct?
Money Direct allows you to electronically deposit funds from banks, credit unions, and select brokerage accounts into your Scottrade account. Money Direct utilizes the Automated Clearing House Network (ACH) process.Q. How soon will funds be available for trading after I initiate a deposit using Money Direct?
Deposit Initiated
On *Your
Checking/Savings Account Debited OnYour Scottrade
Account Credited On **Monday Tuesday Thursday Tuesday Wednesday Friday Wednesday Thrusday Monday Thursday Friday Tuesday Friday Monday Wednesday Saturday Monday Thursday Sunday Monday Thursday *Deposits requested after 8:45 PM EST will be initiated on the following business day.
**Money Direct takes three business days to settle. In the case of a bank holiday, Money Direct may take four business days to settle.
More transfer delays, boo. Sigh… I suppose this service is better than nothing. However, if you have $5,000 with Scottrade you can already get checkwriting access and use that information to link up your account for both deposits and withdrawals through various online savings accounts. And there is less ‘lost’ time between debits and credits. This is what I have been using for months now as a workaround, I’ll make a more detailed post on it if there is interest.
For my other experiences with Scottrade brokerage overall, please refer to my Scottrade review.
As I’ve mentioned previously, I have been enjoying a free trial courtesy of George of Fat Pitch Financials Contributor’s Corner and here is my review.
Basics
The main premise behind Contributor’s Corner is to provide “arbitrage and special situation opportunities in the stock market for small time investors.” One of the more common examples of this is a company trying to “go private” by buying back all the existing publicly traded shares.
For example, let’s say BigBob Enterprises (BOB) has 100,000 shares currently trading at $9.00 each. If it wants to go private, it has to buy back all the shares at a price that the current shareholders as a whole would approve. So maybe it files with the SEC that it would like to buy back at $10.00 a share, giving the potential for profit.
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Just as surely as there will be an article entitled “Lose 10 lbs On 10 Minutes A Day” or “Easy Abs For You” on the cover of Men’s Health magazine this month, there will also be an in big letters “Six Stocks To Own Right Now” or “5 Mutual Funds To Protect Your Money” on the cover of one of the personal finance magazines this month. I guarantee it!
Why? Because “Low Cost Index Funds A Good Idea… Again” every month would get very stale and would stink at selling magazines! In addition, even the construction of the articles themselves is very predictable. It’s almost like they use a Mad Libs form (remember those?):
1. Give me the name of a recently successful mutual fund manager.
2. Give me the name of a formidable-sounding management company.
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I almost feel like it’s the dot-com era again. This time, a new website called Zecco.com is saying that it will offer free online stock trades starting on October 9th, and instead make its revenue from advertising. Possible? I guess we’ll see.
They’ve been telling me about their blogger revenue-sharing program recently, and I wasn’t sure if I should join since frankly I get a lot of similar emails about new financial sites. But it seems like these guys have some serious backing, so I’ll have to look more into it. Check out the press release. Some excerpts:
Our model is different. We run a lean operation, use the latest technology and rely entirely on word of mouth, guerilla marketing, viral campaigns and public relations to get the message out. As a result we can look at the $2 per trade as the cost of doing business ? and still turn a tidy profit.
This approach will force the major brokerages to respond quickly – but in a sense they are caught between a rock and a hard place. Take E*Trade as an example. They will be looking at an annual loss of several hundred million of they decide to do away with commissions. Not a pleasant thought for a publicly traded company.
Thanks to Buddino for the heads up on the free stock trades announcement.
A few years ago, I commited a few thousand dollars to “play money” with which I was supposed to use to learn to become a stock market wizard. I later increased it to $5,000. I learned some basics like the different types of trades, bid/ask spreads, P/E ratios, growth rates, and started buying and selling stocks in $500 increments ($5/trade, so 1% commissions in and out). I really never got around to learning anything in-depth, as I started reading numerous books that convinced me that it was highly unlikely I could ever beat the market over the long haul. Not impossible, but unlikely. Although I read a lot of various investing sites that talk about individual stocks, none of them have really convinced me otherwise.
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Despite some last-minute scares, for those keeping track of the Advanced Nutraceuticals reverse split that I am participating in, it looks like there has been some progress. From their most recent SEC filings and more specifically this press release:
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As I’ve been frantically trying to finish multiple projects before my planned Labor Day road trip, I haven’t spent as much time online. I think this has allowed me to sit back and remember the Big Picture. In truth, the one thing I’ve learned since starting this blog about striving for financial freedom is that it’s actually pretty simple.
1) Save at least 10% of your income. 15% is better than 10%. And so on. Try to make it tax-deferred in an IRA or 401(k).
2) Invest it into low-cost index funds. Let capitalism work for you. For the simplest portfolio, buy the lowest cost Target-dated retirement fund you have access to. There are tons of books on why and how.
That’s it. You don’t need random free money or try to optimize your portfolios or even play credit card tricks. I find it fun and profitable, but #1 and #2 are still by far my top priorities. In fact, you don’t even need to read this blog (gasp!). But I’d prefer it if you did 😉
Added: I’ve added a counter-post about the why I choose to do the little things too and how much I make from them.
While searching for cheap access to Dimensional Fund Advisors (DFA) funds, I ran across the fact that you can get access to them via West Virginia’s SMART529 Select Plan. If you are a WV resident, the contributions are even tax-deductible!
They have various aggressively allocated portfolios with an expense ratio of about 0.20-0.50%. The killer is that there is also a management fee of 0.55%, which can up the overall annual expenses to over 1%. Depending on how much you think DFA will outperform similar Vanguard funds, you may want to go with a Vanguard-based 529 like Nevada’s. Check out their Aggressive Growth/Age-Based 0-3 Portfolio (total expenses of 1.02%):
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It’s very hard to estimate exactly how much we’ll have to save for retirement, as that would require knowing how much our investments will grow in the future. Even if we try to do long-term trends, this can be difficult. But Richard Ferri, author of All About Asset Allocation and founder of Portfolio Solutions, LLC has done his best by layering risk premiums to estimate market returns. You can find the article for free online – ‘Portfolio Solutions 30-year Market Forecast’. An excerpt:
At the end of each year, we analyzed several economic and market risk factors including Federal Reserve forecasts, inflation forecasts derived from inflation protected securities, and the volatility of asset classes, styles, and categories. From that data, we developed estimates for longterm future returns.
Here are some of the results:
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