Over the course of this blog I’ve discussed how my goal was to deploy $2000 into the stock market. This typically took the form of one position, maybe two. However, in the past few days TD Ameritrade opted to eliminate its $6.95 trading fee. Schwab initially cut its trading fee to $0 to better compete with Robinhood. Other brokers, including Ameritrade, shortly followed. Ameritrade’s stock lost $7.5 billion in the process. The massive stock declines among these brokers state the obvious! Commission free trades are a huge win for the consumer! This would now allow buy-and-hold traders like myself to better average in and take much smaller positions.
The upside is obviously, one doesn’t need a lot of money to enter the market. New traders could, theoretically, invest $500 into five stocks. For me personally, I’m no longer investing $2,000 at a time. Instead I will select a new position and buy every other day. If I’m adding to current holdings, I can simply sprinkle that $2,000 over multiple positions. In the past, commission fees would have seriously eroded my return. I called Ameritrade after these revelations to see if there was any fine print. The broker told me they lost millions of investors to Robinhood. Their strategy is essentially to lure investors back to Ameritrade. They would then make most of their money marketing mutual funds to users.
Overall, this appears to be a big win for dividend and/or buy-and-hold investors. One can average in over time without being subjected to unending fees! However, the dark side shrouds newer, less informed investors. For instance, they may buy riskier holdings because nothing stops them. There is no commission and they can invest small amounts of money. With trading done commission free from a mobile platform, investors may gravitate more towards day trading. Even worse, with lower options fees, investors could lose everything from erroneous options contracts. Fees and commissions gave investors accountability. Without it, some could make disastrous decisions!
So, the moral of the story is we need to be careful! Just because we can invest $100 for free doesn’t mean we shouldn’t research the company. That $100 should be invested just like that $2000 I mentioned earlier. Or even $20,000+! For me personally, I can’t wait to buy more often! I’m looking specifically at smaller positions like UTX, INFY, and MO. Rather than buy $1-2000 at a time, I’ll likely buy 1-2 share increments until they become full positions. Doing so will allow me to average up or down and smooth out this turbulent market. Even though stocks are overvalued and the market turbulent, its probably never been a better time to be an investor. Happy trading!
DISCLAIMER: I am long on UTX, MO, and INFY. I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.