We all know brokerage firms have been in a race to zero commission fees. Charles Schwab, TD Ameritrade, Fidelity, etc, have all been lowering their commission fees to attract (and keep) clients. One would say “every trade only costs $12.95!”, then the next would say, “no, our trades only cost $11.95!” Then $9.95, $7.95, $3.95… you get the picture.
Well, Charles Schwab decided to peel off the band-aid faster buy going straight to zero commissions on any trades. Holy cow, that’s a great deal! Of course, the other brokerage firms followed suit. TD Ameritrade announced the very next day that they don’t have any commission fees either.
All of their stocks got crushed on the announcements, too. Did they doom themselves to zero profits? Perhaps in the short-term, but long-term they’ll figure out how to charge other fees to make up for it. Don’t feel too bad for them, they’ll be all right.
The big question is how does this affect you? You can now trade as often as you want and not have to worry about trading fees dragging down your portfolio returns. That’s freaking awesome, right? Wrong.
You shouldn’t be trading enough that commission fees matter in the first place! Here’s an example…
Let’s say you have a $100,000 investment account, and you add new money to it each month. You enter one trade a month as you add that fresh cash. And let’s also say you enter four trades in December for tax-loss harvesting and rebalancing. That’s 16 trades over the course of a year. At $6.95 per trade, that equals $111.20. On a $100,000 portfolio it amounts to 0.11%. It wasn’t enough to worry about before, and it’s not enough to change your investment style now! What, you’re now going to become a day-trader because you can avoid a few hundred in fees?
Bottom line: brokerage firms went to zero commission fees, and it shouldn’t affect you at all. Let the suckers get excited over it. You should stick with your long-term buy-and-hold investment strategy. Period. Don’t try to “get some value” out of it by entering more trades. Stick to your plan!