Meet the new writers! Over the next two weeks, you’ll get to meet all of our new writers. Our first writer this week is Don. Don writes about personal finance topics that include investing, saving, debt, the economy, and retirement. You can read more about Don in his bio. Welcome Don!

Like most investors, you probably look at a mutual funds past performance to gauge how the fund behaves. You may see a fund that has returned 10% per year for the past ten years and think that it would be nice to earn 10% annually. But as an investor in that fund, I doubt you would have seen a 10% return. In fact, I would bet that very few saw a 10% annual return. This is because the stated return assumes you invested in the fund for the entire ten years. You did not sell when the market dropped, or at any point during those ten years. For many investors, they sell when the market is dropping, either through fear or by trying to limit their losses.

Industry Proof

There is a company, Dalbar, that researches investor behaviors. According to a recent report, the average investor’s holding period over the last 20 years was just over 3 years. How does this affect the average investor? In the chart below, if you had invested in the S&P 500 index for the last 20 years, you would have earned a return of 7.8%. The average investors return over the same 20 years: 2.1%.

In numbers, if 20 years ago you had invested $100,000 in the S&P 500 index, your investment would now be worth $440,873. If you are the average investor that earned 2.1% over that same period, your $100,000 is now worth $151,535.

The Reason For The Difference

Why the difference in returns? Because the average investor moves in and out of the market based on short-term events. Many people sold out in the early 2000’s after the dot-com bubble burst. They didn’t get back in until after the bull market had already kicked in. Then they sold out when the market dropped in 2008 and many have not returned to the market since, missing out on a huge rally. Other investors may be jumping around trying to find a better performing security during this time. In either case, the investors are missing out on a rising market.

Three years is a very short holding period for long-term investments such as stocks. Create a well thought out investment plan for yourself and stick to it. Without it, it’s too easy to swap one investment for another. While doing so may feel good in the short-term, in the long-term, it is going to hurt you much more.

Stay Invested

Again, you need to stay invested in the market for the long-term. You cannot predict what the market will do tomorrow. By ignoring the short-term headlines, you are helping yourself. I know that it is not easy to ignore the drops in the market when news headlines are screaming doom and gloom and everyone at the office is repeating what they are saying. You need to do your best at tuning them all out. When you feel like giving in, pull out your investment plan and review it, knowing that if you follow it for the long-term, everything is going to work out in your favor.

More on Investing

• Best Online Discount Broker Comparison
• Can You Have a 401k and an IRA at the Same Time?
• Asset Allocation Update
• ETFs Versus Index Funds

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Everyone knows I’m the first to sign up for a new account if there’s a sign up bonus. So when Betterment showed up, of course I opened an account for the free $25!

But beyond the sign up bonus, what exactly is Betterment and how does it work? Here are my thoughts after opening my account last spring.

Betterment Review

Betterment makes it easy with only two portfolio components: stocks and bonds. You pick your asset allocation and Betterment manages the rest, using index exchange traded funds (ETFs).

Betterment believes in indexing as one of their principles instead of using actively managed funds to try to beat the market. That aligns with my investment philosophy so I like what they’re working on here.

They select the ETFs for you and maintain diversification and your selected asset allocation. They pick the ETFs focused on low fees and high liquidity to keep the expenses down.

Here are the account details:

• Account Minimum: None
• Account Transaction Fees: None

Betterment Portfolio

Here’s what’s in the Betterment portfolio right now (they review it quarterly):

Betterment Stock Market Portfolio:

• 25% VTI: Vanguard Total Stock Market
• 25% IVE: iShares S&P 500 Value Index
• 25% VEA: Vanguard Europe Pacific
• 10% VWO: Vanguard Emerging Markets
• 8% IWS: iShares Russell Midcap Value Index
• 7% IWN: iShares Russell 2000 Value Index

I’m pleased that they recently just added international holdings, as I thought the portfolio was lacking that dimension when I first signed up. Now the portfolio holds 35% in international (25% Europe Pacific and 10% Emerging Markets).

Betterment Bonds Portfolio:

• 50% TIP: iShares Barclays TIPS Bond Fund
• 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund

The overall portfolio is designed to replicate the total market with a value and small cap tilt, which mirrors much of my target asset allocation.

Management Fees

Management Fees: The Betterment management fee is 0.3% to 0.9% of your average balance based on the following tiers:

The Betterment fee, which is charged quarterly, is on top of the expense rations for the ETFs (averaging less than 0.2%). If you withdraw your money, they’ll prorate the fee.

Obviously, 1.1% (0.9% + 0.2%) is a too high for my taste, since I like to keep our expense ratios very low (The last time I checked we were at a 0.148% overall expense ratio). But I also like to manage all of my own investments, so I would say I’m not their target customer.

However, if you’re not into selecting and managing your own portfolio, Betterment is trying to offer an interesting concept. Essentially you pay Betterment to make your trades, rebalance, and monitor the market for new and better ETFs for your portfolio.

Betterment Details

Rebalancing. Betterment automatically rebalances your portfolio every quarter, or when you portfolio is more than 5% from the target allocation.

Partial Shares. Some of the things I like are the ability to invest without the need to buy whole shares. In addition, Betterment uses automatic dividend reinvestment.

Taxes. Betterment will send 1099s (a 1099-B and 1099-DIV) at the end of the year. You’ll owe capital gains when you sell, and taxes on the dividends. Also, you need to be aware that any rebalancing that Betterment does on your behalf to maintain your target asset allocation will create a taxable gain or loss.

Fast Application. The application is fast. I timed it. 4 minutes. And I got my $25 bonus as soon as I verified my bank account, which always creates a good first impression!

Referrals. They have a referral program. When you refer your friends, you get $10 and your friend gets $25.

Betterment Concerns

Transactional Data. The activity data is a bit strange. They update “market changes” on a varying schedule. I understand the use of the baskets is probably driving it, but it’s very strange for those of us who like to track transactions in quicken. In addition, you can’t download your transaction history into a usable format right now, but it says that feature is in the works. I hope so, because frankly, a PDF transaction statement hurts my brain. Once the transactional data is improved, I think it will be more intuitive.

Peer Allocation. Betterment has a fun toy in the dashboard, comparing my asset allocation with my peers based on demographics. I’m at 88/12, but my peers are at 64/36. I found that a little unusual. In fact, when you look at males instead of females, it jumps up to 76/24. Ladies?

However, my bigger concern is that while the peer allocation is fun, it also implies that you should consider an asset allocation like your peers. I don’t agree with that. For example, just because the other women who are similar to me in age and income appear to be more conservative than I am, it doesn’t mean it’s correct.

Target Retirement Funds. While I like the idea for what Betterment is trying to accomplish, isn’t this very similar to target retirement funds? Specifically, much cheaper target retirement funds?

Betterment $25 Sign Up Bonus

Overall, let’s get back to the reason I tried out Betterment in the first place, to claim some free money! If you haven’t opened an account yet, it’s really easy to get the Betterment $25 sign up bonus, just open an account with $250.

What do you think of Betterment?

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This is a story that a reader Joe, shared with me a few years ago. With the stock market again gaining momentum, it’s a great reminder for everyone about what can happen when you ignore your time horizon and focus only on current market conditions.

In your early 20’s, you never know when you will need thousands of dollars for a down payment on a house/car or for an engagement ring. Don’t be over zealous about going full throttle in stocks outside of your retirement accounts. Lesson learned here.

Learning About the Stock Market

I was the opposite of the typical young professional that puts off investing until they’re in their 40’s. I learned about the stock market through my maternal grandfather. Sitting in his living room in the late 1980’s watching CNBC on a July afternoon is what I remember. We would wait for his stocks to come across the digital ticker, John Manville and IBM to name a few. It was a good time. I figured that I was getting a good education.

My grandfather was a self made guy. He was born in 1915 and only obtained a third grade education. He had to quit public school to help support his family. A mason by trade, he made his money developing land into single family housing communities in NJ during the early 1960’s. He would make a profit of $2,000 per house on a fifteen thousand dollar home and in most cases held the note for the new homeowner. In the 1970’s he bought land and oversaw the building of a 314 unit apartment complex with his brother/partner. He put all that he had earned into the project and the income served as an annuity during his retirement years.

Those days when I would watch the CNBC with my grandfather I didn’t realize that the money he had invested in stocks was only a very small portion of his money (play money if you will). The bulk of his net worth was in real estate and the next highest percentage was in tax free municipal bonds. He was mortgage free, owned his car, supported his young family years ago, retired, and had an income that anyone would appreciate. He was in the last quarter of his life and didn’t have to worry about selling stocks in order to buy a car or a house.

My Experience Buying Stocks

When I turned 21 and got my first job out of college, I was contributing to a 401K (mostly invested in stocks) but at the same time I would put a large percentage of my discretionary dollars into the stock market in an individual brokerage account. At the time there were no ETFs and the technology sector was running wild. I majored in finance and figured I had this stock market thing licked. I bought my fair share or Warren Buffett favorites, Coke, Gillette, and even the Berkshire Class B shares, but that was boring. I sold out of them after a few years and modest returns.

During this time I had been listening to my friends as they would follow their tech stocks. Those stocks would jump a few points at least one day per week. Technology was the thing to be in, buzzwords like B2B was all the rage. I’ll never forget stocks like Etoys and CMGI. Watching all this excitement and profit left me feeling in the dark, so I decided to buy some Intel, Etoys, and Cisco Systems. Needless to say, my market timing stunk.

Being Forced to Sell

As I needed money to buy a car and purchase a first home, I had to sell stocks at a loss. I was putting way too much money into retirement (to reap those exciting returns), and cutting myself short as far as budgeting.

All in all, my holding period in my individual account was less than ten years. I had no business being in the stock market for that short duration. I was selling at the wrong times. I watched my portfolio swell tremendously during the late 90’s to see it come crashing at the end of the decade after the dot com bubble. I never had the money invested long enough thereafter to see it regain.

Then there were the 10 years in the stock market that produced no returns (1998-2008). I have been investing since 1996 (the year I graduated). I needed to be out of the market five years ago to have had any kind of positive returns (Caveat: given that my returns mimicked the market’s). That didn’t happen. Ten years is a long time to see no returns. There is nothing wrong gaining a few percent per year in laddered CD’s.

Long Term Investing in the Stock Market

The stock market is truly for your long term money. You need to back that money out slowly over time into something more stable. Investment advisors are correct when they tell you that you shouldn’t be in the market unless you don’t need that money for five years (I say more like ten years.) I wasn’t wise enough to know what was coming down the pike in my life. I wish I had someone tell me more about being cautious financially and what life events were to face me.

Joe’s story is a great reminder, not only for new graduates, but for everyone who has forgotten about market volatility during recent years.

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optionsXpress Review

OptionsXpress is a brokerage with an all-in-one trading platform that allows you to trade bonds, mutual funds, ETFs, options, futures and stocks ALL in one convenient online trading account.

Part of their company mission is to be the “ideal broker for options traders looking to maximize their returns.” Here is a closer look at what optionsXpress offers.

optionsXpress Fees

• Stocks: $9.95/trade ($0.01/share over 1,000)
• Futures: As low as $2.99/contract
• Options: $15 for 10 Contracts; $30 for 20 Contracts
• No Hidden Fees: OptionsXpress doesn’t require a minimum balance and doesn’t charge fees for periods of inactivity, volume or quantity of activity, or standard withdrawals or deposits. Check out their No Hidden Fee Policy.

optionsXpress Additional Trading Fees

One of the features of optionsXpress is the ability to consolidate all of your trading needs in one account. The trading fees for ETFs, mutual funds, and bonds are as follows:

• ETFs: $9.95/trade
• Mutual Funds: $9.95/trade
• Bonds: $9.95/trade

optionsXpress Details

Online Trading Tools. OptionsXpress offers traders a breadth of online trading tools to help customers with their investing strategies.

Virtual Trading. Among the many tools OptionsXpress offers, one of the coolest seems to be their Virtual Trading which allows you to develop your knowledge of investments in a real online trading environment before you actually jump in.

High Ratings. Forbes, Barrons and SmartMoney have all given OptionsXpress good reviews.

optionsXpress Overall

OptionsXpress offers a great array of tools for investors. If you’re trying to teach yourself more sophisticated strategies or are a bit naive when it comes to investing, the tools on their site alone could be of great help.

Some of the information on options and futures may overwhelm investors with a simpler strategy but optionsXpress recognizes this and their interface is easy to navigate for a variety of investing vehicles.

One of the nice features is the free broker-assisted trading, phone or online assistance. Other brokers often charge a higher fee when you need to get assistance with your trade, which is a comfort to traders who might need a little hand holding at first.

optionsXpress Sign Up Offers

Account Transfers. OptionsXpress will reimburse you any account transfer fees your other broker charges you up to $100. To get your $100:

1. Complete a full account transfer of $2,000 or more.
2. Fax optionXpress at (312) 629-5256 with a statement showing your charges.
3. Get your credit deposited to your account within 30 days.

$100 Sign Up Bonus. Don’t forget the free money OptionsXpress $100 Sign Up Bonus offer. To get the $100:

1. Open and fund an OptionsXpress account with $500 by December 31, 2011.
2. Execute three trades within 12 months of opening the account.
3. $100 will be deposited into your new account within one month.

If you’ve been on the fence about opening an account, now is a great time to check them out with the sign up bonus! Madison is planning on opening an account this week to take advantage of the $100 sign up bonus, and dig deeper into the trading tools.

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Series I Bonds offer a low cost, incremental, and low risk investment for your portfolio. I Bonds also protect your money against inflation, as their yield has both a fixed rate as well as a variable rate that changes every six months according to inflation and deflation.

I Bonds were once only available in paper form, but now the Government offers a buying and redemption process that takes place almost entirely online. In fact, the Government plans on making the purchasing of bonds only available electronically in the future. Below, I will discuss the ins and outs of purchasing these bonds.

I Bonds Current Rates

Update: See the most current I-Bonds Rates.

The current rate for I Bonds is 1.74%, and this will not be changed again until November 1, 2010. The fixed rate is 1.54%, and the variable rate is 0.20%.

Series I Bond Purchase Limits

A minimum of $25 is needed to purchase I-Bonds electronically, and a minimum of $50 is needed to purchase paper bonds. Each year, you are allowed to purchase up to $5,000 in Series I Bonds/Series EE Bonds electronically, as well as $5,000 paper issued bonds. That means you can purchase up to $10,000 in bonds annually.

Who Can Purchase I Bonds

The following are requirements for being able to purchase bonds: you must have a social security number, be a citizen of the United States, civilian employee working anywhere, or be a citizen living abroad. Minors can also purchase I Bonds.

Where to Buy I Bonds

Update: You can no longer buy paper savings bonds unless you are using a tax refund.

You can purchase paper I Bonds in most financial institutions, including banks and credit unions. You can also buy Series I savings bonds online, a process that will streamline your purchasing experience for free. There are also many perks to purchasing bonds online, such as the ability to purchase your bonds 24/7, scheduling recurring investments for up to five years, have your details (such as purchase date and maturity date) automatically tracked for you, and online redemption.

The first step to purchasing bonds online is to open a TreasuryDirect account. You will need to have your social security number, the bank routing number and account number, driver’s license, and an email address. Once you fill out the application, an access card will be mailed to you to ensure you are the true holder of the account. You will need this card to access your account. Once in, you can purchase bonds online, and they will credit to your account within one business day.

Automatic Investments

The Treasury is eliminating the paper payroll savings bond program where employees used to be able to automatically purchase paper I Bonds through their employees in order to save the cost of running the Savings Bond program. As of September 30, 2010, federal employees will no longer have this option, and this option will be eliminated for all non-federal employees on January 1, 2010. However, automatically purchasing electronic I Bonds is available by having an account with TreasuryDirect.

Once you open your account and receive your access card, go to the ManageDirect – View My Funding Options tab for instructions on submitting a request to your employer for a payroll deduction. Just like a normal payroll deduction, the deducted money from your paycheck will be sent to your TreasuryDirect account, and will go into a Certificate of Indebtedness (C of I). The C of I is simply a non-interest bearing security to hold your money before you purchase your bonds. Once you accumulate enough money ($25 is the lowest denomination to purchase a bond electronically; $50 is needed for paper bonds), then you can purchase them through your account. Don’t forget, you can set up recurring purchases so that this process is done automatically.  

You can also purchase I Bonds directly with money you receive as a tax return. Check out this article for more information on how to purchase I Bonds using your tax return.

How to Exchange Paper Bonds for Electronic

If you would like to open a TreasuryDirect account to purchase future bonds with, but still have some paper bonds, you can convert the paper bonds into electronic bonds using SmartExchange.

What to Do if Your Paper I-Bonds are Lost/Stolen/Destroyed

If your paper I Bonds are lost, stolen, or otherwise destroyed, you can get replacement ones by filling out Form 1048 and submitting it to the following address:

Bureau of the Public Debt
PO Box 7012 Parkesburg
West Virginia, 26106-7012

Next in the series on I bonds, we’ll discuss online redemption.

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Interest is, well, quite interesting. Instead of your money accumulating in your mattress or shoe box, it can now accumulate plus earn its own money. Money earning money—what a concept.

And there are multiple ways to achieve this: you can open a savings account or purchase certificates of deposits in order to earn interest, or invest in the stock market in order to earn dividends. When the interest paid to you begins to earn its own money, called compound interest, or your stocks earn you dividends purely because you own them, it becomes even more riveting.

It is commonly known that the riskier the vehicles for earning money that you choose, the more potential you have for both reward and loss. But what if you could go with the riskiest option without shouldering any of the risk, and with reaping all of the potential rewards?

Investing in the stock market—whether for short term gains or long term income replacement (IRAs)—offers the greatest amount of potential return, but then it also makes some people’s stomachs turn. Therefore, investing someone else’s money sounds like the solution for the weak-kneed investor because it will eliminate your personal risk all together.

Where to Find Money

So where can you find other people’s money? Most households in America have extra money that trickles in during the year from sources other than their paychecks. Perhaps you receive:

• A Christmas bonus
• Credit card or bank card offers
• Reward points for purchases that can be cashed in
• Monetary gifts from relatives for various occasions
• Online surveys that earn you money
• Bonuses from signing up for bank offers
• A good tax return in April that you weren’t banking on

This money is unaccounted for in your household, so it is generally a pleasant surprise. Why not make this money work for you?

How to Get Started

Open up a savings account where you can deposit all the extra cash that comes into your household throughout the year. Then choose a time frame for investing this money. Perhaps enough extra money will accumulate for you to invest it quarterly, or maybe you will have to wait until the end of the year. Remember, you can start investing at $4.00 on sites such as Sharebuilder where you can split stocks into half shares in order to afford them.  

Budget your bills with the salary that you know you can count on.  This way, you are not risking what you know you are working for, and will always have money to put food on the table. If at the end of this you lose everything (which is not likely if you choose investments with lower risks), you are not any worse for it. You have essentially taken away your investment risk. Any extra money you earn from your investments will be icing on the cake, and you can thank your boss, Uncle Sam, your relatives, or anyone else who has unknowingly contributed to your interest earnings.

This approach may not make you wealthy, or allow you to retire at your desired retirement age, but it will certainly get you in the investing game without feeling vulnerable to risk.

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ETFs versus index funds, which is better? Yesterday we determined what is an ETF?

In the overview, Jill mentioned that ETFs usually have lower expense ratios and are ideal for a one-time small investment that you will hold for a long time. They’re also good for trading a large group of assets at once. However, you have to account for the trading commissions both when you buy and adding money in the future.

That’s great… but just how do we actually figure out which one will have the lower cost in any given situation?

ETF and Index Fund Calculator

Luckily, Vanguard makes it really easy for us to compare the costs of an ETF or an index fund with their ETF calculator.

For example, I mentioned that I was moving a chunk of an old 401k to Vanguard this week. It’s $50,000 and I’d like to put some of it into the Vanguard Emerging Markets Index (VEIEX). Let’s compare it to the Vanguard Emerging Markets ETF (VWO).

The index has a 0.39% expense ratio and 0.25% purchase and redemption fees. The ETF has a 0.27% expense ratio and I would normally pay $7 per trade using Scottrade.

ETF and Index Fund Comparison

Compare a $50,000 investment over 20 years adding $5,000 per year, in the example outlined above, and the ETF is lower cost option, saving $5747. Here’s what the calculation looks like:

More ETF Factors

When you use the calculator, you’ll have to account for the following variables:

Free Trades. In the example, I used Scottrade. However, there are lower cost broker options like TradeKing and Zecco. Depending on which broker you are using, your results will vary.

Rebalancing Your Portfolio. One of the things that the calculator doesn’t take into account is the need to rebalance your portfolio. You’re going to have to determine how often you do this and the effect it will have on the expenses in your portfolio if you are using ETFs instead of index investing.

Admiral Shares. Once you have $100,000 in a Vanguard fund, you get admiral shares with lower expenses. You’ll have to compare the admiral shares to the ETF too, to make sure you’re still getting the lowest cost.

In the example with the emerging markets index, even if you compare the admiral share class (VEMAX), which has a lower expense ratio of 0.27%, the ETF still is the lower cost option, in large part to the purchase and redemption fees.

However, when you look at the total stock market, like when I started a young family member in a Vanguard ETF for her Roth IRA, the ETF is lower cost for the same example above, but the Total Stock Market Index Fund Admiral Shares (VTSAX) is the lower cost option using the admiral shares. This is mainly due to the difference in expense ratios. The total stock market index fund (VTSMX) has an expense ratio of 0.18% compared to the ETF (VTI) at 0.09% and the Vanguard Admiral Share class at 0.09%.

Action Plan

Right now, I’m still using index funds for the majority of our portfolio. However, after doing some research with the emerging markets ETF, I’m considering using the ETF for a portion of our portfolio going forward.

Do you use index funds, ETFs, or a combination of both in your portfolio?

More on Investments

• Today’s Top 50 Stocks
• Today’s Top Performing ETFs
• Best Online Discount Broker Comparison

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Whether you are investing through tax-advantaged retirement accounts or in other taxable accounts, you might want to consider Exchange Traded Funds, or ETFs, as part of your long-term investment strategy. ETFs are one of several ways to invest in equities. Others include individual stocks, mutual funds, or index funds.

What is an ETF?

An ETF is simply a fund made up of multiple securities, somewhat like a mutual fund. ETFs differ from mutual funds in that they are continuously traded on the stock market (and thus revalued) throughout the day, making it easy to buy or sell at any time.

ETFs can be made up of securities that track a stock index (like the S&P 500) or instead choose to focus on a specific industry and/or country. ETFs are generally not actively managed – unlike a mutual fund the underlying stock investments remain the same from time to time. The price of an ETF is usually very close to the value of the underlying assets, but does not have to be.

ETFs also generate taxable income from dividends and charge a management fee just like a mutual or index fund.

Why choose ETFs?

ETFs are good for you if you have a one-time small investment, as they do not have a minimum investment. Be aware, though, that ETFs charge flat trading commissions that can be costly, so they will eat up a larger percentage of your initial investment the smaller that investment is. Long term, ETFs have lower expense ratios than mutual funds that can make up for the up-front cost. Since ETFs can be sold through a broker throughout the day, they allow investors to use techniques previously reserved for individual stocks such as buying on margin and short-selling.

ETFs are an ideal vehicle for trading a large group of assets at once. However, because of trading commissions, ETFs should be used by those planning to hold the same group of underlying assets for a long period of time. If you rebalance your portfolio often, or plan to purchase small amounts of shares regularly (such as through dollar-cost averaging), index or traditional mutual funds may be a better option for you than ETFs. Bottom line, ETFs are good options for those making a one-time new investment or for those looking to simplify and consolidate several small existing investments.

Getting started with ETF investing

Individual investors can buy and sell ETFs on stock exchanges through any broker, much like individual stocks. If you want to invest some of your retirement funds in ETFs, check with your current 401(k) plan administrator or IRA broker.

If you simply want to begin investing in an ETF outside of a retirement account, check with any major broker such as Fidelity, Vanguard, or Sharebuilder. Make sure to compare several funds to review past performance, dividend payments, and expense ratios. Look for Money Magazine’s recommended ETFs on their Money70 list – there are one or two ETFs in every category.

Further Reading

For more details about ETFs, and how they are created and valued, check out Yahoo!Finance, the Investment Company Institute Factbook, or About.com.

Check back tomorrow for ETFs versus index funds!

More on Investments

• Today’s Top 50 Stocks
• Today’s Top Performing ETFs
• Best Online Discount Broker Comparison

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Our investment club just finished reevaluating our broker. We do this every couple years to make sure we’re getting the best service and the best rates. We decided to stay with Scottrade.

Scottrade Account Details

• Account Minimum: None
• Opening Account Minimum: $500
• Account Fees: None
• Trading Fees: $7 per trade (market or limit), which includes stock and ETF trades*. Options have an additional $1.25 per contract. Mutual funds are free or $17 per trade depending on the fund.

Scottrade Details

Local Office. This comes in handy for an investment club, since we switch officers yearly. We still make all our trades online though.

Multiple Checks. Scottrade accepts deposits from multiple club members, something that many other brokers don’t allow. It becomes a hassle when you need to deposit checks at the bank and transfer the money monthly.

Integration with Software. We use Bivio for our club software, which is compatible with Scottrade to download our transactions. It makes the treasurer’s job much more manageable.

Cheap Trades. $7 trades work out well; it’s not the cheapest, but it is still inexpensive. We researched some of the low-cost brokers, but they didn’t offer all the services above, which are important for an investment club.

Individual and IRA Accounts. I also use Scottrade for some of my personal accounts and my family members, and my only complaint was when I ran into their silly fees to change my name.

Investment Clubs

I’ve been a member of our investment club since 2002. Here is more information about running an investment club:

• How to Start an Investment Club
• Investment Club Bylaws

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Zecco was on my short list in my search for a new brokerage, since they have dirt cheap, and sometimes free, trades.

I finally got around to checking them out last week after I heard about their April Fools’ Day joke. Apparently, when customers logged in last Wednesday, they were greeted with million dollar account balances. I love April Fools, so I had to check out any company that was willing to participate in such fun!

My Zecco Review

Zecco offers trades at $4.50 per trade, which is pretty cheap. It just barely edges out TradeKing at $4.95 per trade, and easily beats Scottrade (which is the broker I am trying to replace). You can also earn 10 free trades per month with a $25,000 account balance or if you make 25 total trades per month.

Account Details

• Account Minimum: None
• Opening Account Minimum: None
• Account Fees: None
• Trading Fees: $4.50 per trade, which includes stock and ETF trades. Options have an additional 50 cents per contract. Mutual funds are $10 per trade.

Zecco Details

Stock Screener. The stock screener was my favorite tool at Zecco. It was very helpful, since I could select multiple criteria that our investment club uses for evaluation. I will definitely be sharing that at our next club meeting, since we haven’t been able to locate a free tool that does something similar, so easily. Zecco also has about a dozen preset screens, if you don’t know what you are looking for.

Ticker. Normally, tickers at the bottom of the screen drive me crazy. However, I liked the Zecco ticker, because I could quickly put in my list of stocks to watch and see it scroll while I was working on some research.

Premium Tools. I was a little disappointed to see that you have to pay extra for Gainskeeper ($24.99 for six months). Although, you can try it out for free for two months. They also offer a Quotestream package with premium data analysis tools for $20 per month.

Free Trade Calculation. To get the free trades, you’ll need to reach the $25,000 minimum balance each month. As soon as your end-of-day balance hits it, your account will get the 10 free trades the next day to use in the remainder of the month. If your account goes below $25,000 your free trades will stay in your account.

Sign up for Paperless. They charge $2 per paper statement and $1.50 per paper trade confirmation, so be sure to sign up for the online statements, which are free.

IRA Accounts. They offer retirement accounts, but charge a $30 annual maintenance fee.

Forex Trading. If you are into forex trading, or want to learn more, they offer a $50,000 practice account so you can learn.

My Thoughts

The Zecco sign up was fast and easy. While it didn’t offer immediate approval, I got an email within the hour saying my account was ready to go. Once your account is set up, you can sign up for the free ACH service to fund your account.

The education section isn’t as robust as TradeKing, but then again, I wouldn’t necessarily look to my discount broker for learning how to invest in stocks.

They do offer cheap trades. If you are looking for a cheap broker, but don’t care about lots of extras, Zecco could be the way to go. I’m going to stick with them for awhile and see how they do beyond the initial account opening.

Even though they won’t meet my needs of finding a cheap broker to deposit old stock certificates (they charge $75 for stock certificate deposits), they are in the running for my new regular broker.

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