For those about to invest, we salute you! There is now one less impediment between you and your financial goals.
Back in the dark ages, which is when I first started my investment portfolio, buying securities through a brokerage was expensive. For many years, I had automatic contributions withdrawn from my bank account by a private investment company. While I was busy learning about new products, individual investors were gaining the ability to access various products due to the rapid growth of technology. By the time I had learned about exchange traded funds and the importance of low management expense ratios, it was relatively cheap to do online transactions with my brokerage. It took some convincing but I finally moved my portfolio from the investment company to my brokerage. Regardless of who held my portfolio, I continued to dollar-cost average my way into the market each month.
Today, I’m happy to write that market competition has partnered with technology to make investing even easier for today’s investors.
As the number of financial services firms expands, the Big Banks are being forced to stay competitive with trading platforms that offer commission-free trades. This means that the banks’ brokerage arms allow customers to buy certain securities without paying a commission. In other words, it’s free to invest your money in more and more places!
This is is fantastic news. Why? It normally costs $9.95 to place a buy/sell order. For people who believe in dollar-cost averaging into the market, it costs roughly $10 each time a purchase is made. Long-time readers know that I divert a chunk of my paycheque to my investment portfolio every payday. Every 4 weeks, I buy more units in my chosen exchange-traded fund (VXC). I care not whether the market is up or whether it’s down. My plan is to buy and hold for the long-term. The execution of my investment plan is simply: buy more VXC units every 4 weeks and hold onto them.
So I was tickled pink when my brokerage*** announced that it would allow customers to purchase certain securities without paying a commission. My favourite dividend ETFs were both listed (XDV & VDY). Unfortunately, my happiness bubble was quickly pricked by reality. The fates have conspired to keep my equity ETF off the list of the commission-free securities!
This is great news!
Even though I’m still paying commissions, it’s fantastic that there are now so many commission-free options from which people can choose. The upshot is that there is one less impediment between people and their investment goals. Fees, MERs and commissions are all hurdles to clear on the journey to your investment goals.
Think about it. Any money that is not paying for commissions can be re-directed towards investing for your future. You and I both know that compound growth needs time to work. The sooner you start investing your dollars, the better.
Commission-free investing means that you can invest more frequently. Like I said, my dollar-cost averaging plan entails monthly purchases. I made 13 trades each year since I invest every 4 weeks. However, should there ever come a day that my ETF of choice makes it onto the commission-free list, I will be buying more units every two weeks.
Why increase the frequency of buying? Two simple reasons. It would be free to buy more frequently. Also, my money can’t grow unless it’s invested. I want to give compound growth as much time as possible to work its magic.
Do your due diligence.
My brokerage is with one of the Big Six banks. I’d be surprised if all of the big brokerages didn’t have their own list of securities that can be purchased commission-free. If you’re already investing, find out if you still need to pay commissions. And if your brokerage isn’t offering commission-free trades, ask yourself if its other benefits are worth paying commissions. If not, move your portfolio!
I spend a lot of time telling you to be cautious about the management expense ratios that you’re paying. (Again, any MER over 0.50% is way too high!) Commissions are another area where you should be paying close attention. Most big banks will charge you roughly $9.95 to make a trade through their online brokerage platform. It will cost even more if you make the trade over the phone with a human being, assuming that you can connect to real live person.
If you’ve already started to invest, then great – keep it up! Should your securities be on a commission-free list, even better. Now, you can bump up your contribution amount by whatever amount formerly went to paying commissions. Compound growth works faster if your money is invested now instead of later.
And if you’ve not yet begun investing for the Care and Feeding of Future You, what are you waiting for?
There is one less impediment to doing so. Start today!
*** Full disclosure – my investment accounts are with BMO Investorline. While I’d prefer to not pay a commission, I’m certainly not going to alter my investment plan due to this situation.