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.

4 comments:

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 trades...it 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 scottrade.com and got 3 free trades with this promo code: DOOL8293