Monday, June 11, 2007

Why I'm not moving to Zecco (Yet)!

Zecco's 40 free trades/month has certainly created a stir in the blogosphere. Seems like everyone is making a post or three, so yours truly will also hop on the bandwagon. LazyManandMoney and others blogged when Zecco first opened with $2500 account minimums. In addition, MyMoneyBlog recently commented on creating the smallest all world portfolio containing 5400 stocks for just over $300 (as well as posted an insightful review based on his personal experience). SavingDiva and others have also posted letting the world know that a intriguing new alternative exists. BluePrint just posted an perceptive commentary on whether Zecco seems like a scam, with some great research.

I, however, am going to continue with my Scottrade account (for now). For a longterm investor, if you only have a couple of hundred bucks, $0 commissions certainly seems like it would be tempting. However, in the end, I think the more important lever would be making sure you pick good investments that you are willing to hold for more than a year - moving from paying taxes on short term capital gains to long term capital gains.

Example: For a $1000 investment gaining 20% in the 25% tax bracket, you'd save $20 (more than the $14 ($7 commission both ways) to Scottrade) just by holding on to your investment for a year rather than less than a year. If you think that you're burning up good ideas by not having a high turnover ratio, more power to you - and the thought is tempting - but it seems that Zecco is catering to more of a trading mentality rather than an investing mindset.

Keep in mind, also, that Scottrade allows you to buy and sell (most) no load funds for $0 commissions as well - I bought my emerging markets fund that way. $0 commissions on stock trades (effectively eliminating a 1.4% expense ratio on the example above) is rather tempting. Nonetheless, customer service and reputation are invaluable in the securities market, and the $7 commission seems like a small price to pay - although in time I think the playing field will level. Meanwhile, I'm going to stick with Scottrade for awhile while Zecco becomes established and works out some of their initial customer service issues.


SavingDiva said...

It might be worth noting that now Zecco doesn't have a minimum (it's been lowered from $2500 to $0)...and free might be a fun way to play with the stock market. I'm still trying to get enough money together to have a play account.

Smith said...

Thanks SavingDiva - you are quite right. Zecco did indeed eliminate the minimums - which really helps them for people who don't have a lot to play with. $14 on $300 would be almost a 5% equivalent expense ratio.

Jonathan said...

I think Zecco is simply catering to the bottom line ;)

Whether you pay $100 or $0 for a trade, one should still do their due diligence before spending their hard-earned money.

I do agree, however, that if you are a long-term investor and don't trade very often, that it won't make a huge difference.

Scottrade doesn't allow $0 trades on all no-load funds anymore (like Vanguard or Fidelity), and handled the removal of that feature very poorly in my memory. However, their customer service on a day-to-day basis still seems pretty good.

Good luck with your goals!

Anonymous said...

I researched Zecco and decided it was a bait and switch. I signed up with and got 3 free trades with this promo code: DOOL8293