I said in an earlier post I'd cover the absolute cheapest way to invest, so here it is. The answer is Zecco and ETF's. How so you ask? Well, ETF's are exchange traded funds, basically mutual funds that trade on the stock exchanges just like any other company's stock. The basic structure of an ETF allows for very low fees , somewhere on the order of 0.25% or less for all of Vanguards funds. The ETF is usually cheaper than the actual fund if you were to buy it from the company. Considering the average mutual fund expense ratio is 1.4%, you are paying 4-6 times less for an ETF. So why are mutual fund companies still in business? Brokerage fee's.
To buy an ETF, you must go through a broker just like any other stock transaction. Even with the rise of the discount broker you pay $4-$7 per transaction, which translates into 4-7% of a monthly $100 investment. Sharebuilder is your best bet for dollar cost averaging using ETFs, as long as you are putting in $200+ per month to keep the investment cost ratio down. So how does Zecco fit in?
Zecco is a company that offers zero cost commisions(hence the name zecco) on regular stock transactions if you meet there requirments. Right now that mean >$2500 invested gets you 10 free trades a month. Less than $2500 and you pay $4.50 a trade. Once you meet the minimum cash limit, suddenly ETF's become cheaper than mutual funds due to the low expense ratio. Since the goal is to accumulate wealth, you won't be selling anytime soon, and the $2500 will be met with in year, or two.
Over a 30 year period, the difference between even 0.15%(Vangaurd 500) and 0.07% (Vangaurd Total market ETF) can be $3000 for every $10,000 invested. The only drawback right now is that Zecco does not offer an automatic investment program. You can open an regular or IRA account, but you must make the stock purchase every month yourself. If have the discipline to do this, you can save big in the long run, but until they offer an alternative, I'm sticking with Vangaurd mutual funds, because you just can't beat having the money taken out automatically. Still, I use Zecco to play around with stocks small time. Check them out at Zecco.com
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