Commission Free ETF Trading

| February 15, 2011 | 0 Comments

It happened again…

I hit the links with a friend this weekend.  You just can’t beat the beautiful Arizona weather this time of year.  Really, it would have been a sin if I didn’t enjoy the 75 degree temperatures.

Not surprisingly, the golf course was packed.  To complete our foursome, they paired us up with a nice couple on vacation from Chicago.

I had seen TV clips of the blizzard that blew through most of the northern US.  After watching those, I can’t blame the couple for escaping to sunny Arizona…

Once we were a few holes into our round, they asked the inevitable question, “So Corey, what do you do for a living?”

In my experience, most golfers love to talk about the market and investing.  Their ears immediately perk up when they find out I’m a stock market analyst.

As always, I was happy to talk.  I told them I specialize in investing in ETFs (Exchange Traded Funds).  Then they hit me with one of the questions I hear most often from individual investors…

“Are ETFs better than mutual funds?”

I love this one…

“Yes, ETFs are better than mutual funds.”

Here’s why…

First off, ETFs have smaller expense ratios than mutual funds.  In other words, ETFs are cheaper than mutual funds.  That means you get to keep more of the gains.

And it doesn’t matter if the difference is small.

Over the long run, a mutual fund with just a half percent higher expense ratio will cost you tens of thousands of dollars.  I don’t know about you, but I prefer keeping more money for myself… I’m not giving it to some fund manager.

And don’t overlook all the other advantages… tax efficiency, diversification, liquidity, and investment style purity.  The list goes on and on…

And here’s the best part.  A good number of ETFs now trade commission free!

Simply put, this is the biggest development yet in ETF investing.  It eliminated the one final edge mutual funds held over ETFs.

Let me explain…

Many investors regularly invest small amounts of money.  Anyone who has a 401k or self-directed IRA knows what I’m talking about.  Every pay period you contribute a small part of your paycheck to your retirement account.

This is often referred to as dollar cost averaging.

For years, mutual funds held the advantage in this area.  They didn’t charge a commission each time a small amount was invested.

But if you followed a similar strategy with ETFs, you had to pay a commission each time.

The high cost of commissions made this type of strategy too expensive to do with ETFs.  Who can afford to pay $5 to $20 on every $200 investment?  This one huge drawback offset all of the great features of ETFs…

Now, commission free ETFs are available.  They’re opening up ETF investing to a new type of investor.  And it won’t be long before ETFs are the primary investment vehicle in the world.

Where can you trade ETFs commission free?

The first four brokers to offer commission free ETF trades are Fidelity, Vanguard, Charles Schwab, and TD Ameritrade.  So you’ll need a brokerage account with one of them to take advantage of the free ETF trades.

TD Ameritrade seems to have an edge over the other three firms.  They offer commission free trades on 100 different ETFs.

You can choose from an impressive lineup of 31 equity ETFs, 3 REIT sector ETFs, 32 bond ETFs, 31 international ETFs, and 4 commodity ETFs.

The way I see it… Commission free ETF trades are the best thing since sliced bread!

ETFs are far and away better investment vehicles than mutual funds.  And now you can trade them commission free!  That’s great news for anyone who wants to use dollar cost averaging.

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Category: ETFs

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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