Stocks

Zecco Trading Offering 20 Free Stock Trades

by Flexo on August 31, 2009

I do very little stock trading. In fact, the only individual stocks I hold are Microsoft (MSFT) and Akamai (AKAM), both of which I purchased with free money for opening a brokerage account. Naturally, I think free cash is a perfect candidate for experimentation with the stock market and I most likely would not have made these purchases without this particular incentive.

Zecco Trading is offering a different incentive for those who have funds for trading stocks but would like to avoid pesky transaction fees that eat into your returns. For a very limited time, Zecco is offering 20 free traders. This discount brokerage normally offers 20 free trades each month for customers who maintain a $25,000 bonus in their account or execute 25 trades each month. Otherwise, each trade costs $4.50, still one of the lowest transaction fees available.

Here is how to receive 20 free trades without meeting the minimum balance or minimum trade volume. First, be a new customer. Only new Zecco customers are eligible. Apply for your Zecco account here, and use the code bonus1 when signing up for your account. Your application must be complete and approved by September 13, 2009.

As long as you meet the above criteria, you will see 20 free trades available in your account by September 16, 2009.

For more options, see this summary of five true discount brokerages.

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American Companies May Want to Trade on Shanghai Stock Exchange

by Flexo on June 17, 2009

There is some speculation that Coca-Cola, General Electric, and Wal-Mart are seeking to raise capital by offering stock… in China. The companies have not responded to these rumors, but China seems open to allowing western companies to participate in the country’s stock exchanges once trading resumes.

If American companies want to be on the Shanghai Stock Exchange, American investors might want to be there, too. The way things stand now, it is difficult for foreign investors to participate in the Shanghai Stock Exchange. Any individual investor outside of China must be aligned with a Qualified Foreign Institutional Investor in order to trade companies listed on this exchange.

A more accessible way to access the China stock market may be through mutual funds offered domestically. The Fidelity China Region Fund (FHKCX) is a strong choice despite the 1.11% expense ratio. (Expense ratios will tend to be higher for international funds.) Vanguard does not have a comparable fund, and FHKCX is up 31.25% so far this year.

Funds like FHKCX invest in Chinese companies, and it’s unlikely, if western companies begin trading on the Shanghai Stock Exchange, that these funds will include shares of these western companies in their portfolios. So this doesn’t solve the problem of accessing the shares of these companies that would theoretically be traded in China.

Regardless, if companies see China as an opportunity for growth and capital, it might not hurt to follow them by investing overseas.

Photo credit: SmokingPermitted
Coca-Cola, GE, Wal-Mart May Seek China IPO, UBS Says, Allen Wan and Veronica Navarro Espinosa, Bloomberg, June 17, 2009
Shanghai Stock Exchange, Wikipedia, June 17, 2009

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Smithee’s First Stock Sale

by Smithee on May 29, 2009

Well, I sold my first stock. I agonized over when would be the right time, but then I just pulled the trigger, anyway.

Earlier this year, I started using the “free money” I was getting from this credit card to buy some stocks.

In March, we paid our tax bill of over $3,300 using that card, so the 2% rewards were higher than normal. I asked a friend of mine who knows a lot more about the stock market than me what stocks were catching her eye, and on her unofficial recommendation I bought 60 shares of CAR, the Avis car rental people.

That was April 17th. The stock price was $1.50. With a $9.95 commission at Sharebuilder, I ended up “spending” a total of $99.95.

And then I watched as the stock price just rose and rose and rose.

Avis stock performance since Apr 17th

On about May 20th I started wondering if I should sell my proceeds. We’ve had rather more pet problems than usual and I was a little worried that our upcoming vacation might suffer as a result. The “overall return” on that investment, according to Google Finance, was hovering around 200%, which is a heck of a lot more than the 7 to 9% we’re taught to expect from long-term investments.

So I sold it on May 27th. I was a bit alarmed to see that there was yet another commission of $9.95. To me, that’s like paying a toll over a bridge going in each direction.

Stock proceeds: $282.24
Minus original investment of $99.95: $182.29

Now, if I’m reading this Capital Gains Tax table correctly, we’re going to be hit with a 25% of the “cost basis” come next April. If the cost basis is the amount I spent on the investment, that’d be the $99.95 number again, which means a tax of about $25.

Profit minus upcoming tax: $157.29

So I spent $99.95 and got $157.29, a real profit of 157%. Not the nearly 200% that Google Finance was teasing me with, but not shabby, either.

The other way to look at it is that since the $99.95 was free money in the first place, I made a profit of infinity dollars.

More importantly, when we take our vacation next month, we’ll have $157 that we otherwise wouldn’t have had. That’s one fancy dinner with some very good wine. I’m looking forward to it.

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Personal Finance Advice: One Size Does Not Fit All

by Flexo on May 25, 2009

It is human nature to search for Truths that describe the world we live in. This is one reason why personal finance gurus are so popular amongst a group of individuals that listens. Many of the more popular authors, seminar leaders, and cult favorites stick by their mantras, Grand Unifying Theories, such as “credit cards are evil,” “invest in stock index funds for the long term,” and “always buy a used car.”

Any individual who has been able to build a following, cult or otherwise, within the subject of personal finance would do well not to let others peek inside the leader’s own. The advice doles out to the public is usually for a specific intended audience, and it is rare for a guru to fit within the audience he or she is addressing.

In her book, Women and Money, Suze Orman explains that everyone should be invested 100% in stock index funds until close to retirement. This is solid, definitive advice for Suze’s audience, and in this case, men as well. There are some instances where this statement may cause trouble, such as the recent stock market collapse. The book was published in February 2007, as the stock market was reaching a recent peak.

Yet, the average person entering retirement will still have several decades to live, several decades in which the nest egg must last even when being drawn upon. The best way to do this is with a stock index fund. But if we look at Suze Orman’s own portfolio, she doesn’t follow her own advice. As of last year, Orman had $1 million invested in the stock market, a lot of money but only 4% of her own portfolio. The rest was mostly invested in municipal bonds which are very safe but earn less over time. In an interview, she stated she only invests in the stock market what she can afford to lose.

The rules, defined and proliferated by Suze Orman do not apply to her. And they shouldn’t. Why would someone with assets of $25 million follow the same advice as Suze’s audience, in which members might have a net worth anywhere from several hundred thousand dollars below zero, in debt, to several hundred thousand dollars above zero?

The mathematics don’t magically change when you are rich, but the only chance for average individuals to survive through retirement is to take relatively risky bets on the stock market. While the stock market has failed to disappoint in the long term if you look at the numbers, real performance doesn’t always match the statistics thanks to timing. Wealthy individuals, like Suze, can afford to accept less risk. A bond return of 4% on $24 million invested results in an income of $960,000 a year — and that doesn’t include speaking engagements, royalties and television deals. Suze, who is quite comfortable at this stage in her life and career, should not be required to live by the same philosophies she preaches for her callers.

Should you stop following her advice? Suze Orman has helped many people come to terms with their financial condition. But unless you’ve spoken to her about your specific situation, take her mass-market advice with a grain of salt. Yes, her nuggets of wisdom are in many cases helpful, but not everyone falls neatly into the same category.

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When Large Institutions Hoard Cash, Start Investing

by Flexo on April 28, 2009

Rather than lending and investing, banks are holding onto large amounts of cash. For large companies, particularly companies whose stocks trade publicly, now is a good time to keep cash on hand for excess liquidity and to look strong for investors and analysts. The liquidity allows the bank to be ready to strike when they believe it’s time to invest their own assets. And they will invest, it’s only a matter of time.

Even though I usually stay away from predicting shorter-term stock market performance, I can safely say that when large financial institutions begin lending and investing en masse, the stock market will go up. So now, before the banks make their moves, it might be a good time to move some of your excess cash into equities. The economic environment right now, in the midst of a recession, might eventually prove to be a once-in-a-generation opportunity for investing once we are far enough away to view the longer-term trends and place day-to-day experiences in perspective.

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Reader Question: How Can My Money Earn More for Me?

by Flexo on April 24, 2009

A reader and friend is looking for some basic financial advice. It just so happens that April is National Financial Literacy Month, so the timing is perfect because I am in a sharing mood. I get to share his situation and my suggestions with Consumerism Commentary readers, and readers have the option of offering their own thoughts.

I’m neither a financial adviser nor a financial planner, but I thought I could help by sharing my philosophy, my approach, and what will, I hope, pay off for me in the long run. Here is a little about my friend: He owns his own business and his wife is a public high school teacher. They are both 33 years old, living in New Jersey. Right now, most of their money is in a high-yield online savings account. First, he asked me how he could earn more on that money and I suggested switching to a bank offering a higher interest rate like FNBO Direct and we touched on certificates of deposit, but he is looking for more.

So I asked him what his goals are and what kind of money we were talking about. He wants to save for retirement and for his child’s education, and he would like all his money to be earning more in general.

Here was most of my response. If you have anything to add or change, please feel free to leave a comment at the bottom of this article. Don’t consider this financial advice. If you take action on my suggestions, you do so at your own risk.

Email begins here:

For retirement, you should be putting some money into an Individual 401(k). Since you work for yourself, you don’t have an employer offering you a 401(k), so you can just set one up for yourself.

You can invest up to $16,500 in that account in 2009. The 401(k) is the best option for retirement if you don’t do anything else. You should only invest money in this account that you’re 98% sure you won’t need until you’re 59 1/2. You can borrow from it before then if you need to, but if you don’t pay yourself back, you’ll owe penalties. Since this is a long way off, you should choose a stock index fund like VTSMX.

If you invest in an index like VTSMX, you would have to change your allocation as you get close to retirement to move away from stocks and more towards bonds. Bonds have a lower return (over the long term — they can beat stocks over the short term) but are safer, stocks are riskier but can provide a higher return. A “lifecycle” or Target Retirement Fund changes the allocation between stocks and bonds automatically as you get older. So if you invest in a lifecycle fund now, it will be mostly stocks, but as you get older, it will gradually shift towards bonds. This will help you preserve your money and you’ll be less exposed to stock market crashes and recessions when you’re getting closer to making a withdrawal.

You might choose the Target Retirement 2040 Fund or if you want to be more aggressive (more risk, possibly higher return), you could choose the Target Retirement 2045 Fund.

I’m not sure what your wife’s options are, but she probably has a pension which will help out in retirement and she probably has an option for a retirement contribution plan such as a 403(b), basically a “non-profit” 401(k).

The next priority would be education for your daughter or any other future kids you decide to have. The most popular option here is a 529 Account. Again there are low-cost options with Vanguard. But if you’re pretty sure your kids will go to school in New Jersey, you can invest in a New Jersey state 529 plan because you’ll save on taxes. If you invest in a 529, you must withdraw the money for education expenses only. If you withdraw it for some other purpose, you’ll owe taxes.

The next priority would be everything else you want to save for. Make sure you have enough in an emergency fund (in a high-yield savings account like ING or FNBO Direct) to cover your expenses for a few months in case you’re not working and Ali loses her job. If your mortgage interest rate is high, you might want to pay that off faster because that will save you money down the road. Otherwise use that money to invest in a regular investment account. I would suggest stocks (VTSMX) even for your non-retirement investing because they’ve taken a beating recently, and while they might go down a little in the short term, they should recover nicely (unless the United States economy is fundamentally flawed, but I don’t think it is).

I’m suggesting Vanguard because they generally have the least expensive investment options. There are no account maintenance fees if you agree to email delivery of statements (rather than paper) and the funds’ expenses are lower than just about every other company. And low expenses means you keep more of your own money, which is good when you have lots of time for it to grow.

Most of Vanguard’s funds require an initial $3,000 investment. So when you set them up, you’d have to start with at least that much in your 401(k), your 529, and your regular investment account — that’s $3,000 initial investment (or more if you wish) in each of those. But after that you can set up automatic investments or just leave it alone for the rest of the year.

Don’t be seduced by investing directly in individual stocks. That’s like gambling. Stick to broad non-managed index funds like VTSMX because it will spread your risk around and it’s proven to beat stockpickers’ performance over the long term.

If you’ve maxed out your 401(k) and want to invest more for retirement, consider a Roth IRA and a SEP IRA.

End of email.

Do you agree or disagree with my suggestions? What did I leave out of this message?

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Company-Wide Stock Bonus Vesting Next Week

by Flexo on March 6, 2009

in Career and Work

In March 2006, my company rewarded its employees for achieving an enterprise financial milestone by offering a company stock bonus, designed to vest on March 14, 2009. The vesting period was perhaps designed to create an incentive for employees to stay with the company. When the bonus was announced, the stock grant was worth about $2,000. At the high point last year, the value of the package approached $3,000.

If the bonus were to vest today, each employee would receive the same amount of shares, but the value would only be about $300. The value of a share of my company’s stock has declined 90% from the high. To reclaim that high, the price would need to increase by 818%. That would be 5% a year for 30 years or 3% a year for 75 years. It’s probably safe to say it will be a long time before we see last year’s prices again, if ever.

I don’t see this price changing much for the better within the next week before the grant vests. I suppose I should be happy that I still have a job, although I’m considering leaving to work for myself full-time, and I should appreciate receiving this bonus in the first place.

Management says that our company’s stock price is sympathetic to the rest of the industry and the decline is not due to internal factors.

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My First Stock Purchase

by Smithee on February 27, 2009