We started our club with a Bogle-like mindset of minimizing operating expenditures. This mindset unintentionally led to a tiny profit in start-up costs. Here’s what we did.
(1) A How-To Book. Invest in a good book to guide you. We purchased the “Investment Club Operations Handbook” from the Better Investment Community. Cost: $26.95.
(2) Club Address. A nearby P.O. Box. Annual cost: $56.00.
(3) EIN’s/Banking Part I. We arrived at Chase bank to open a business account and were told we needed an EIN. What’s an EIN? It’s an Employee Identification Number issued by the IRS associated with your club. Every investment club is responsible for annual taxes and needs an EIN like individuals need an SSN. EIN’s are obtained free of charge through the IRS at irs.gov. Cost: Free. I called the IRS and their customer service agent was very helpful unlike those at Chase Bank...
(4) Banking Part II. We return to Chase with the EIN and were told we also needed a recognition of Partnership from the county. The Chase agent then handed us a self-contradictory page stating we only needed the EIN. I found myself irritated while Cadillac and crew more calmly found a temporary checking account giving us a $125 opening bonus. Awesome, beating the S&P already. Gain: $125.00.
(5) Partnership. The County Clerk helped us get through the correct forms properly. Cost: $10.00.
(6) Banking Part III. We used the personal account of the last visit to receive an additional referral bonus in setting up the Chase business banking account. Gain: $50.00.
(7). Business Checks. One box of duplicate business checks ordered online. Cost: $15.94.
(8) Trading Account. Scottrade seemed convenient, good for customer service, inexpensive ($7/trade), and included a referral bonus for 3 free trades. Woodcreek has an earlier post describing the various online brokers. Gain: $21.00.
In the end, the net cost of establishing the club was a gain of $87.11. --Schlitz
Showing posts with label fees. Show all posts
Showing posts with label fees. Show all posts
Sunday, February 1, 2009
Sunday, January 18, 2009
The Investment Vig
I'm a numbers guy at heart, a statistical process control engineer, and a poker player who likes to roll dice occassionally. The one thing I hate most are taxes. In casino speak, taxes are called "vigorish" or "the vig." The vig is what casinos take out of your winnings to keep for profits.
Analogously with investments, the vig would be called "broker fees." With that in mind, I chose to open an account with Scotttrade where each trade costs me $14.00. No...$7 you heard. But consider that the only way to get your money back is to sell the stock you bought which costs an additional $7, right? So for me, I discount any investment by $14 on the assumption I'll eventually want to sell. Scotttrade also has a nearby office and great customer service so it's worth the slightly higher vig in comparison to Trade King.
In keeping the vig on my portfolio as low as possible, I figure I need to buy at least $1000 of a single stock at a time. Why? Because buying $100 worth of stock means I gave my broker an enormous 14% of the investment value. At $1000 minimum trades, the vig is reduced to 1.4%, a tax rate I can stomach.
Recent books by Jim Jubak and Peter Schiff have introduced me to agriculture/metals commodities and foreign companies, particularly in Brazil. In starting a personal investment portfolio, I'm looking at the following candidates in no particular order:
(1) BHP Billiton: An Australian mining company heavily ingrained in China's growing infrastructure.
(2) GE: A domestic mainstay banged up by the financial crisis yet ready to support infrastructure initiatives by Obama.
(3) Petrobas Brasiliero: A Brazilian oil company doing amazing stuff with technology that's fun to read about as an engineer. Their NYSE symbol is "PBR" so a must have anyway.
(4) Central European Distribution: Largest vodka producer in Poland and a Jubak selection. Yeah, yeah I've heard it already...do the vodka company before the PBR or the portfolio may get sick.
(5) Vale: Brazilian. Large producer of iron with a great Chinese market share. Other precious metals.
(6) Schlumberger: This amazing French company is trading near it's 52-week low due to slumping oil prices. It's available for less than 9 times earnings. Unreal. I wanna buy SLB right now but I don't know enough about investing yet.
Before I start buying Brazil, there are some dangers to evaluating foreign companies that requires additional research for me. I'll share what I learn in the future. -Schlitz
Analogously with investments, the vig would be called "broker fees." With that in mind, I chose to open an account with Scotttrade where each trade costs me $14.00. No...$7 you heard. But consider that the only way to get your money back is to sell the stock you bought which costs an additional $7, right? So for me, I discount any investment by $14 on the assumption I'll eventually want to sell. Scotttrade also has a nearby office and great customer service so it's worth the slightly higher vig in comparison to Trade King.
In keeping the vig on my portfolio as low as possible, I figure I need to buy at least $1000 of a single stock at a time. Why? Because buying $100 worth of stock means I gave my broker an enormous 14% of the investment value. At $1000 minimum trades, the vig is reduced to 1.4%, a tax rate I can stomach.
Recent books by Jim Jubak and Peter Schiff have introduced me to agriculture/metals commodities and foreign companies, particularly in Brazil. In starting a personal investment portfolio, I'm looking at the following candidates in no particular order:
(1) BHP Billiton: An Australian mining company heavily ingrained in China's growing infrastructure.
(2) GE: A domestic mainstay banged up by the financial crisis yet ready to support infrastructure initiatives by Obama.
(3) Petrobas Brasiliero: A Brazilian oil company doing amazing stuff with technology that's fun to read about as an engineer. Their NYSE symbol is "PBR" so a must have anyway.
(4) Central European Distribution: Largest vodka producer in Poland and a Jubak selection. Yeah, yeah I've heard it already...do the vodka company before the PBR or the portfolio may get sick.
(5) Vale: Brazilian. Large producer of iron with a great Chinese market share. Other precious metals.
(6) Schlumberger: This amazing French company is trading near it's 52-week low due to slumping oil prices. It's available for less than 9 times earnings. Unreal. I wanna buy SLB right now but I don't know enough about investing yet.
Before I start buying Brazil, there are some dangers to evaluating foreign companies that requires additional research for me. I'll share what I learn in the future. -Schlitz
Saturday, January 3, 2009
Trading Fees & Online Brokerages
An extremely important, but often overlooked area of investing involves trading fees. The best way to view fees associated with your investment is like a tax, and the easiest way to eat up your profits is by exposing yourself to excessive or unnecessary fees. Don't let yourself overpay for common services, and don't let yourself be nickel and dimed. This priciple is talked about extensively in John C. Bogle's book Common Sense on Mutual Funds. Bogle, by the way, is the creator of the Vanguard mutual fund family which is known for its low fees.
One area I've personally seen a good chunk of my profits eaten up is through trading fees. Long ago when I set up my personal investment account, I picked eTrade as my brokerage based solely on the positive things I had read about it. Now don't get me wrong, I love the speed, ease of use, and all the extras on eTrade, but since I recently began investing the money in that account, I've found that trading fees are rather high. At $12.99 per trade, I need to clear $25.98 on any transaction before I even make any profits. This wouldn't be a huge amount if I was dealing in larger amounts of shares and/or money, but at the levels I'm currently trading it is just too much.
As an investment club, we've spotted this as an area that we want to target. We want to minimize the amount of 'taxes' we're exposed to, so we can maximize our profits. I was personally tabbed with comparing a number of the online brokerages that are out there. I initially looked at eTrade, Scottrade, Charles Schwab and TD Ameritrade. Any of these well known online brokerages could have been good choices, but their trading costs ranged between $7-$12.99/trade which would mean we'd need to clear anywhere between $14-$25.98 on any transaction before making a profit. That still seemed a bit high, so we looked at other options. That's when we stumbled across Zecco and Trade King. Zecco offers trades for $4.50 while Trade King offers $4.95 trades. That puts the break even point down at $9-9.90/trade... that's a huge difference when your dealing in relatively small amounts of money or low numbers of shares. While we're currently leaning toward using Trade King due to the positive feedback we've read and away from Zecco due to the mixed reviews we've seen, we haven't yet decided which one we'll pick. It mostly depends on which brokerage may be offering a bonus or other promotions (somebody will be blogging on the topic of bonuses and checking accounts very soon). Zecco might still be an option considering the new promotion for $0 trades with a minimum $2500 balance (http://hello.zecco.com/landing/search/search2/?gclid=COO6u5HJ8pcCFQHHGgod0wcEDg). We'll keep you posted when we decide.
One area I've personally seen a good chunk of my profits eaten up is through trading fees. Long ago when I set up my personal investment account, I picked eTrade as my brokerage based solely on the positive things I had read about it. Now don't get me wrong, I love the speed, ease of use, and all the extras on eTrade, but since I recently began investing the money in that account, I've found that trading fees are rather high. At $12.99 per trade, I need to clear $25.98 on any transaction before I even make any profits. This wouldn't be a huge amount if I was dealing in larger amounts of shares and/or money, but at the levels I'm currently trading it is just too much.
As an investment club, we've spotted this as an area that we want to target. We want to minimize the amount of 'taxes' we're exposed to, so we can maximize our profits. I was personally tabbed with comparing a number of the online brokerages that are out there. I initially looked at eTrade, Scottrade, Charles Schwab and TD Ameritrade. Any of these well known online brokerages could have been good choices, but their trading costs ranged between $7-$12.99/trade which would mean we'd need to clear anywhere between $14-$25.98 on any transaction before making a profit. That still seemed a bit high, so we looked at other options. That's when we stumbled across Zecco and Trade King. Zecco offers trades for $4.50 while Trade King offers $4.95 trades. That puts the break even point down at $9-9.90/trade... that's a huge difference when your dealing in relatively small amounts of money or low numbers of shares. While we're currently leaning toward using Trade King due to the positive feedback we've read and away from Zecco due to the mixed reviews we've seen, we haven't yet decided which one we'll pick. It mostly depends on which brokerage may be offering a bonus or other promotions (somebody will be blogging on the topic of bonuses and checking accounts very soon). Zecco might still be an option considering the new promotion for $0 trades with a minimum $2500 balance (http://hello.zecco.com/landing/search/search2/?gclid=COO6u5HJ8pcCFQHHGgod0wcEDg). We'll keep you posted when we decide.
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