Investing used to be expensive. Mutual funds are legally allowed to charge an 8.5% commission and, in the past, many funds’ commission approached that level. Today, with the popularity of no-load index funds, which don’t charge a commission, the pressure is on all mutual funds to reduce their commissions and fees, and they have.
Stock commissions weren’t much better back in the 1980s. The commissions for buying or selling the average stock was $45, with charges in the hundreds for large orders. That is not the case today.
No Commissions And Fees
Today’s investing world is unrecognizable and has transformed from the last century. In the current competitive investment world, you can buy and sell stocks for free with the Robinhood app. Firstrade recently began offering free online trading of stocks, mutual funds, ETFs and options. Even investors who use discount brokers like Charles Schwab (NYSE: SCHW), TD Ameritrade (NASDAQ:AMTD), E*Trade (NASDAQ:ETFC), Fidelity and others can get free trades.
The promotions abound. Fidelity will give you up to 500 free trades when you open and fund an account. For most investors, those 500 free trades will last quite a while. TD Ameritrade gives you up to $2,500 and 90 days of free trading when you open a new account.
Even if you don’t qualify for free brokerage trades, the cost of buying and selling stocks has reached rock bottom – from $4.95 at Fidelity and Schwab to $6.95 at Bank of America’s (NYSE:BAC) Merrill Edge. Back in the 1980’s, Merrill Lynch was a full-service stock brokerage firm, without discounts!
Vanguard allows investors to trade their ETFs for free. And Vanguard is not alone. According to ETFdb.com, there are multiple platforms that allow investors to buy and sell certain ETFs without paying fees. Among the brokers in this category are Schwab, TD Ameritrade, Fidelity, Interactive Brokers (NASDAQ:IBKR), and E*TRADE.
So cost-conscious DIY investors can buy and sell securities with zero transaction costs at a variety of sites.
But if you want to go beyond customer service and receive investment management from your brokerage firm, there are digital investment platforms for you.
Free Robo-Advisors Keep Trading Costs in Line
Free robo-advisors include M1 Finance, Schwab Intelligent Portfolios and WiseBanyan.
Free in this case means no investment management charges by the broker. Specific exchange-traded funds always charge management fees. But in general, the ETFs chosen by robo-advisors are low-fee index funds.
For investors seeking free access to thousands of stocks and funds, M1 Finance is a good choice. This robo-advisor is unique because it gives you the option of investing in a pre-made investment portfolio (M1 calls them pies) or you can choose your own investments and set your own asset allocation levels. The best part is that M1 Finance will rebalance your portfolio when you add money to it and does not charge a management fee. The minimum balance is $100, so it’s accessible to most investors.
The Schwab Intelligent Portfolios robo-advisor doesn’t charge a management fee either. As usual with robo-advisors, you answer a few risk-and-goal-related questions, and then Schwab lays out a recommended asset allocation. If you don’t like the allocation, you can change it. With a $5,000 minimum investment amount, thousands of branch locations and access to all of Schwab’s services, this free investment management offering is enticing.
WiseBanyan has a starter robo-advisor that is also free. If you want additional services, such as tax-loss harvesting or access to a wider variety of assets, you’ll pay a low management fee. With a zero minimum investment amount, this platform is designed for novice investors.
Yes, Investing Is Finally Free
The high fees that retail investors used to have to pay are gone. Even financial advisors are feeling the pressure to lower fees and utilize more technology. When you do pay a fee for investing today, you’ll pay significantly less than in the past. Finally, investors can put most of their money into the markets instead of in brokers’ pockets.
Barbara A. Friedberg, MBA, MS is a veteran portfolio manager, expert investor, and former university finance instructor. She is editor/author of Personal Finance; An Encyclopedia of Modern Money Management and two additional money books. She is CEO of Robo-Advisor Pros.com, a robo-advisor review and information website. Additionally, Friedberg is publisher of the well-regarded investment website Barbara Friedberg Personal Finance.com. Follow her on twitter @barbfriedberg and @roboadvisorpros. As of this writing, she has an investment in WiseBanyan.
