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When I first started investing, traditional stock market investing was inexpensive and inconvenient. Because full-service brokerage firms and their fees were out of my league, I looked for other ways to invest. Fortunately, I found ways to invest in the stock market without paying transaction fees.
For example, I opened a DRIP (dividend reinvestment plan) account with my utility company (Duke Energy) and simply mailed a check to its plan administrator periodically. Similarly, I wrote checks to Fidelity and Janus mutual fund companies, designated to certain funds. Then, I just watched as my wealth grew, partly due to regular contributions and partly due to increase in share values.
Things have changed since then. Today, direct purchase programs and dividend reinvestment plans typically charge for their services. But new investing methods have emerged, once again making investing inexpensive and accessible to the new and experienced investor and now free.
Here are simple ways to invest without transaction fees:
Buy stocks and ETFs from zero-commission brokerage firms
One of the most significant developments in investing is the real-time, zero-commission trade for stocks and ETFs. Webull led this revolution, which was then followed by brokerage bigwigs E*Trade, Fidelity, Schwab, and TD Ameritrade (since then Schwab has announced its intention to purchase TD Ameritrade).
What's new and exciting about this change is that free trades are available at limit prices on a real-time basis. Previously, free trades were typically available via a batch processed method only, so you couldn't snatch up a good buy during the trading day.
I should mention though that Vanguard customers with $1 million or more in their accounts can qualify for free trades, as could those taking advantage of special promotions offered by brokerage firms. However, free real-time trades everyday for regular investors is new.
Buy mutual funds through online brokerage firms
Many no-transaction-fee, no-load mutual funds are available through online brokerage firms. Many of these fee-free choices are index funds that are passively managed (the funds track a specific index, such as the S&P 500, so fund managers focus on maintaining positions of stock in the S&P 500 rather than devising and implementing fancier strategies to make money).
An easy way to locate these funds are through the use of screening tools found in the log-in area of a brokerage firm's interface. Filter selections by “Fee” and specify “No Load & No Transaction Fee” offerings. To completely avoid fees, notice whether there is a fund redemption fee, which are often charged to investors who sell shares less than 180 days after buying them.
These fee-free mutual funds typically have minimums set by the mutual fund company or the brokerage firm. Minimums may range from $100 to $3,000 for initial investments and up to $1,000 for additional investments. Schwab has recently introduced no minimums on certain funds.
Buy commission-free ETFs through online brokerage firms
Many online brokerage firms have a roster of commission-free exchange-traded funds (ETFs) available to their customers, even if they don't offer free real-time trades. Generally, these offerings can be found by using ETF screening tools.
Some or all of these ETFs may have a short-term trading fee; that is, if you buy and sell shares of a commission-free ETF within a 30-day time period, then you may owe a fee that is typically equal to the brokerage firm's standard fee for stock and/or ETF trades. Also, an ETF may be commission-free when you purchase shares but its status may change later, and you'll be charged a fee for future purchases and/or sales.
Typically, the minimum investment is the price of one ETF share.
Buy mutual funds directly from fund companies
Certain mutual funds are available directly from fund companies at no charge. For example, you can buy mutual funds from FundX Upgrader Funds offered by the FundX Investment Group, which also offers portfolio management for private clients and publishes an investment newsletter; and Motley Fool Funds developed by Motley Fool Asset Management, which is run by the same folks who oversee the The Motley Fool website and its subscription investment newsletter service.
These funds tend to have higher-than-usual expense ratios compared to market index funds as they are actively managed. But many often have no sales load or transaction fees associated with their purchase.
When I started investing, I could (and did) buy funds directly from fund companies. Today, some of these organizations have morphed into full-fledged brokerage firms, such as Fidelity, whereas others have more of a hybrid approach, such as Vanguard, which facilitates fund purchases and brokerage activities separately.
Buy stock and ETFs through special investing platforms
There are special investing platforms that offer free trades to investors. One that comes to mind in this category is M1 Finance.
The catch with this type of firms is that you can't place a real-time order when you buy for free. Generally, orders from all customers are combined and then placed at one time. M1 Finance references this moment as the trading window. If you're investing for the long term, this point may not or shouldn't matter. But when the price of a stock you're buying goes up in a certain day by more than the cost of a typical fee-based trade (say $2.95 or $7.95), then you're not really saving money.
Still, the advantage of some of these platforms is that you can trade for free, buy fractional shares (partial shares), and ignore market fluctuations in favor of long-term investing.
There are many ways to invest without fees. Find the ones that work well with your habits and preferences to save money and build your wealth.
How have free trades and no transaction fees changed your investing methods?