Mike Timmermann, clarkhoward.com
If you follow the investing world, you know that companies are always in competition with one another to lower their fees. So what you pay over time to invest is going way down.
But how about paying absolutely nothing, zip, zilch, nada?!
Investing for absolutely free
When it comes to investing, keeping costs low is the name of the game. That’s because management fees, annual expenses and so forth can take a big bite out of your money. In fact, paying just 1% more in annual fees can mean you’ll have $80,000 less in retirement!
Clark has long advocated investing in index funds over individual stock picks. But did you know its possible to assemble a basket of individual stocks into something approximating your own individual mini-index fund? And that you can buy fractional shares without paying one cent in fees? That means every penny you invest is going to work for you and your future!
Over the years, there have been many attempts to offer free stock trading. Commissions on stocks have long been rumored to be going away, but what really happened is they just got really cheap. It’s now routine to pay under $10 a trade through Etrade,Schwab, Fidelity and others. That’s down from hundreds of dollars for a trade back in the old days.
But today is a new day and it’s now possible to pay ZERO commission or fees for stock trading through at least two players.
Minimum investment: None
Costs and fees: None
Robin Hood is the latest to try zero-commission stock trading by offering free trades from your smartphone (both iPhone and Android).
How does Robin Hood make money? One of three ways: On the money you have on deposit with them in your online brokerage account; if you borrow (leverage) to trade; and by moving orders through particular platforms.
Minimum investment: $10
Costs and fees: None
With Loyal3, it’s free to open an account and you can buy fractional shares starting at just $10 a pop. There are no fees to buy a stock or to sell it. Plus, the company offers direct access to IPOs (initial public offerings — aka buying a stock before it first becomes publicly traded) starting at $100.
You only have access to a universe of 60 or so stocks, but that includes very popular companies like Alphabet (Google), Facebook, Tesla, Netflix, Starbucks, McDonald’s, Coca-Cola, among others.
How does Loyal 3 make money? Companies will pay them for increasing brand engagement through their social network and to oversee their IPOs and follow-on offerings.
Building your own index fund
Let’s use Loyal3 as an example. Say you open an account with the company. Then you link up a bank account and use that to fund your Loyal3 account. Remember, all it takes is $10 to get started buying your first fractional share of any of about six dozen stocks!
When you place an order, your order for a fractional share is batched with other people’s orders. That master order is executed once per day. So the price you ultimately buy at could be higher or lower than the going rate in the market for a given stock when you order. But if you’re investing for the long haul, the difference in price from one day to the next is immaterial for you.
So let’s say you want to build your own version of the Dow Jones Industrial Average — the most popular stock index in the world.
Loyal3 lets you buy nine of the 30 companies that make up the Dow. These include:
- American Express
Sure, you’re missing out on the other 20 or so Dow stocks, but think about this: You paid no fee at all to buy these companies! And when you want to sell any of them, you pay no fee for that either.
It’s about the closest thing to a free lunch that there is in the investing world!
Plus, with Loyal3, you get access to other companies you may to consider owning for the long haul, including Amazon, Berkshire Hathaway, Activision/Blizzard, Electronic Arts, Facebook, Netflix, Square, Starbucks, Tesla and others.
All for no fee to buy or sell!