When it comes to investing, there are all sorts of options to invest your money. You could go with mutual funds or stocks or exchange traded funds. From there you have countless online discount brokers, full-service brokers, and even automated investing services.

The only problem is that many times when you invest, you have to pay a commission or trading fee.

stock market

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Low Cost Investing Options to Choose From

Here are some low cost investing options to get around these fees so that you can invest more of your money.

Free Investment Options

Mutual Funds: This investment is the easiest one to invest in for free. In fact, there is no reason, none, why you should pay a fee to invest in a mutual fund. There are thousands of no cost funds out there and they are just as good and in most cases better, than any fund you pay to invest in.

The easiest options are to go directly to the fund company. Places like Vanguard and T Rowe Price allow you to invest in their mutual funds for free.

Discount brokers like Fidelity and Schwab allow you to invest in their own mutual funds for free and thousands of other providers as well.

Other discount brokers, like Scottrade and E*Trade allow you also to invest in other mutual funds for free as well. All of these discount brokers have lists of the funds you can invest in for free, so make sure you look over that list first.

Exchange Traded Funds: In many cases, ETFs are just as easy to invest in for free. While you cannot go to the iShares website and invest directly with them, you can do so at Fidelity for free. Fidelity even offers a handful more ETFs that don’t have a commission fee.

With Schwab, the same is true as well. You can invest in Schwab ETFs for free or many other providers ETFs for free. Some other discount brokers have free ETFs as well. The only word of caution is to do your research first. Not all brokers offer the same free ETFs to trade. If the ETF isn’t free, you are looking at paying a commission in line with buying stocks, which is between $7 and $10 per trade.

Stocks: This is the most difficult option when it comes to trading for free. Some brokers will give you free trades if you open an account with a certain dollar amount. Others will give you free trades if you place a crazy amount of trades each month. Don’t fall for this trap. You don’t make money with short-term trading. These companies want you to get in the habit of trading so that when the free trades are used up, you are in the habit of trading and will start racking up the fees.

As of this writing, the only truly free stock trading options are two new companies, Robinhood and Loyal3. I personally don’t have experience with them, but have heard good things about them. Note that you cannot invest in any stock for free at Loyal3. They have a small (but growing) list of companies you can invest in for free. As of this writing, some of the companies include:

  • Nike
  • Microsoft
  • Amazon
  • Coca-Cola
  • Apple
  • Berkshire Hathaway
  • Disney
  • Intel

As you can see, the list has some nice names on it. If any readers have used the Loyal3 service or know of another way to trade stocks for free, leave a comment below.

Low Cost (And Free) Brokers

With the competition for your money at an all-time high, online brokers are doing everything to get your money. Most don’t charge a fee to have an account and most don’t even have inactivity fees, which were standard some years ago.

Options like Fidelity and Schwab are great places to start as they offer free mutual funds and ETFs to invest in and charge an acceptable price for stock investing. A firm like Vanguard is just as good, with free investing in their own mutual funds and ETFs, the only difference is their mutual funds have a minimum of $3,000. Both Fidelity and Schwab have much lower minimums.

Another new option out there is a firm called Motif. There you can either invest in an already created motif or create one yourself. A motif is essentially a “fund” you create that is made up of stocks or ETFs. You can have up to 30 investments in a motif and the fee to trade a motif is just $9.95. This is a deal if you are investing in 10 stocks because at most other brokers, you are looking at a fee of $99.50 (10 x $9.95) to make these trades. As with Loyal3 above, I have no experience with this firm either, but think the concept is great. However, Madison opened an account at Motif to take advantage of the Motif Investing $150 Sign Up Bonus.

The last option for brokers are the robo-advisors. The two big ones are Betterment and Wealthfront. These companies work by investing your money into a set portfolio of low cost ETFs. You open an account and set up an automatic investment and you are done. They will invest your money each month for you. They are a great option for those who are scared of the stock market because they take the emotion out of the equation. You are investing each month, regardless of what the market is doing.

I personally use Betterment and love it. While there is no fee for your monthly investments, they do charge a management fee. With Betterment, the fee starts out at 0.35% and goes down to 0.15% as your balance grows.

In addition to investing your money, they also rebalance and tax loss harvest for you, allowing for better returns.

Why You Need To Understand The Commission You Pay

For some, you might wonder why paying a $7 commission on a stock trade is a big deal in the first place. The reason is simple: it is a lot of money! While $7 might not sound like much, if you are investing $100, then that $7 is a 7% fee! You have to invest at least $500 to get that fee down to just 1% and you could argue that is still a large amount of money. After all, most investors refuse to use a financial advisor that charges a 1% annual fee to manage their money. When you invest yourself and pay the commission, you are still losing out on your money. Therefore, you have to pay attention to fees.

If you only have a small amount of money to invest each month, then look at free mutual funds or ETFs as opposed to stocks. Otherwise, your best bet is to keep saving your money until you have $1,000 or so to buy a stock (remember each stock you buy has the commission) so that your fee is reasonable in amount.

Final Thoughts

Remember, fees and commissions eat away at your money. Take the time to research the cheapest investment options for your situation so that you can keep more of your money. Find a low cost investing option that works for you.

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Comments to Low Cost Investing Options to Avoid Unreasonable Fees

  1. I’ve actually used both Loyal3(previously) and Robinhood (currently). Noything bad to say about either, really love Robinhood though. As for Loyal3, they used to let you use credit cards to buy stocks, but too many people were gaming the reward card thing and they stopped allowing credit cards. Also, with Loyal, you don’t have any control over the price you pay or sell at, it’s all handled by them, so sometimes it seems you can kinda get shafted. Robinhood is like your typical broker, you can set limits and all that. Neither allows margin, so that’s not an issue. I’d go with Robinhood if I had to pick, it allows you more freedom than Loyal3.

    Ray

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