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Commission Fee Management in Mutual Funds
Old 09-03-2013, 12:55 PM   #1
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Commission Fee Management in Mutual Funds

Hello,
I opened a Roth IRA through Scottrade and have started investing in no-load mutual funds. Scottrade charges $17 each time you purchase shares in a fund (unless it is a no-transaction fee fund, but I'm ignoring those here for arguments sake). I save money diligently and am curious how often people generally buy new shares. For example: If I have $1000 invested in each of five different mutual funds (diversified according to my investment plan) and I save $100 per week, then I have $20 per week that I can add to each of my five funds ($20 x 5 funds). If I invest my $20 in each of the five funds I will incur a fee of $85 (5 funds x $17 per fund). In this case I basically have an 85% expense ratio ($85 fee / $100 investment). My question: How much cash should I save before I invest it in my hypothetical five mutual funds? Is there a general formula people use?

Thank you in advance!
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Old 09-03-2013, 01:39 PM   #2
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Use a different broker. Look at Vanguard or Fidelity.

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Old 09-03-2013, 01:46 PM   #3
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+1 on changing brokers....


For an IRA, I would never use a broker.... I would go directly to the fund company.... there is no reason to have more than 2 (maybe 3) MF companies....


Edit to add: Your cost would be higher than you are stating.... using your example.... your NET amt invested is $3 with a $17 expense... almost 6Xs your investment....
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Old 09-03-2013, 01:57 PM   #4
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At $17 cost, I'd keep your buys above $1,700 so your costs remain below 1%. Preferably well above $1700, though you'll have to weigh the costs of being out of the market long enough to accumulate that amount. And that's only if you don't have a better alternative, either a similar no transaction fee fund or a better fund platform with no fees.
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Old 09-03-2013, 02:02 PM   #5
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Big picture, I avoid this situation and stick to NTF funds. Open an account with the fund family directly also avoids this.

With ScottTrade they do have a systematic investment program with lower cost you check into Systematic Purchases & Redemptions | Mutual Fund Redemption
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Old 09-03-2013, 02:05 PM   #6
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Call Vanguard today! You'll save all those commissions, make more money and won't have to worry about fees. Also look at fund expenses.....you want to look at index funds......you'll save a lot of money!
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Old 09-03-2013, 02:28 PM   #7
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Thanks to everyone for their wise advice! Obviously, I am fairly new to mutual fund investing. However, I do understand how to evaluate funds and avoid high expense ratios. I recently read one of Paul Merriman's books, which led to my questioning the value of having my IRA with Scottrade where I have to pay the $17 commission. I know Merriman recommends Vanguard. I also understand that it is only valuable to use large investment firms (Vanguard/ Fidelity) if you are going to purchase in-house mutual funds. I guess if my returns are the same without the $17 fee it will be worth changing to Vanguard.

Thanks again.
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Old 09-03-2013, 02:33 PM   #8
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I use both Schwab and Vanguard since some funds are NTF at one and some at the other. I have funds in both camps.

I also go direct to the fund family when there are fees everywhere or initial fund positions are locked out at the brokerages.

As has been said earlier, with your small incremental investments you will be much better off sticking to NTF funds. Fees will eat you alive if you don't.
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Old 09-03-2013, 05:23 PM   #9
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Vanguard / Fidelity customer here. I never pay buying / selling fees. Fidelity even has ETFs that trade free.
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Old 09-03-2013, 06:33 PM   #10
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I was browsing Scottrade's website and they have almost 3,000 no load, no transaction fee mutual funds. There's really no reason to buy a transaction fee fund even if you decide to stay at Scottrade.
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Old 09-03-2013, 06:54 PM   #11
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That is actually one of the reasons I signed up with Scottrade initially. I need to take some time to evaluate their NTF's more closely. Particularly to determine whether I can put together a portfolio of NTF's that has similar fees and returns to that of larger investment firms, such as an all Vanguard portfolio. A friend of mine who did well with mutual fund investing (he's happily retired now) has been teaching me what he did. His method involved using the newsletter "No-Load Fund Investor" to pick funds that ranked high within their investment class (and to diversify across classes). Since I didn't know any better, that's what I started doing. Scottrade had the best mix of No-Load funds/ NTF's/ low fees/ low commissions/ customer service that I could find. The method has actually worked well for me too (but I have yet to see a bear market). However, as I'm accumulating money to invest I'm realizing that the $17 Scottrade fee could make a dent in my investments as I add money to the funds I've picked. That's what led me to start this thread. So far, very few (if any) of my chosen funds have fallen within the Scottrade NTF families. Naturally, I'm questioning whether the NTF mutual funds at Scottrade are any good. If not, I'm probably better off going with Vanguard or something, which has proven returns on their in-house funds.......I have a lot to learn.
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Old 09-03-2013, 07:36 PM   #12
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No Load Fundx ? I use them also, I don't buy a fund if it is not in the NTFs available. Replace it with a similar fund that is NTF. When you posted this, one of my question was why are you buying these particular funds. Here's some info from the NoLoad site on this

Should You Pay A Transaction Fee to Buy a Fund? | NoLoad FundX Blog
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Old 09-03-2013, 07:44 PM   #13
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Quote:
Originally Posted by MRG View Post
Use a different broker. Look at Vanguard or Fidelity.

MRG
Fidelity is even worse. $75 for a no load fund that is not a no transaction fee fund. As far as I know, this is the most expensive by a big margin.

Ha
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Old 09-03-2013, 07:44 PM   #14
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I'm actually using No-Load Fund Investor, which is different from No-Load FundX.
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Old 09-03-2013, 07:46 PM   #15
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rbmrtn,
Thanks for the link! Very informative.
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Old 09-03-2013, 07:58 PM   #16
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How much is your typical periodic investment? The smaller the amount, the more important it is to avoid the transaction fee funds. I see Scottrade no longer offers any commission-free ETFs. I'm thinking Fidelity might be a good solution for you with their 65 free ETFs. You can easily build a diversified portfolio of ETFs including US, foreign, bonds, real estate, etc. for free!
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Old 09-03-2013, 08:03 PM   #17
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Fidelity is even worse. $75 for a no load fund that is not a no transaction fee fund. As far as I know, this is the most expensive by a big margin.

Ha
I buy Vanguard Funds at Vanguard and Fidelity at Fidelity. Both have low cost index options which have very low ER's and naturally no transaction fees.
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Old 09-03-2013, 08:03 PM   #18
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I've never paid a transaction fee to buy or sell a fund at Fidelity. They do charge for those that are not NTF, I just don't buy them. I have paid a $7.95 commission (plus some cents, which I don't get) to buy/sell stocks. Except for the NTF ETFs.
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Old 09-03-2013, 10:08 PM   #19
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I have bought a couple of non-NTF funds at Fidelity to complete my IRA holdings. The $75 is buy-only. There is no sell fee. That works well enough close to retirement, where your just transferring a large chunk of money into the fund and not dribbling it in. And I can dribble it out for withdrawals as needed, for free. I stay AA balanced using a taxable account directly with the fund company. That avoids fees, and it's easy to transfer taxable money back and forth.
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