"commission free" ETF trade options for major Brokerages

[elphaba]

Several brokerage firms are allowing up to 25 free trades if purchasing one of their select group of ETFs. I checked Fidelity Brokerage and the list includes ETFs that correspond to our TSP funds, i.e.
AGG for F fund,
IVV for C fund.
IWO for S fund (or a couple other similar ETFs),
EFA for I fund,

The 25 free trades is not so much better than our TSP rules BUT then you can do additional trades for a relatively nominal fee -$8-$10- This is what many of us had asked TSP to consider when they were changing the rules and limiting our trades. I still hold a big grudge on that decision by the TSP board.

With Fidelity, looks like if you transfer $100,000 from TSP to a traditional IRA there, you get 200 free trades. Not sure if there is a time limit on when this expires but this is definitely something I'm going to do further investigation on. Though I've heard the website for Fidelity is not always reliable and maybe not user friendly - I don't want my trades hampered or delayed so I need to investigate further. [although I have found the new TSP website rather cumbersome to log into so not sure if there is a huge difference..]

Apparently, Vanguard and other major brokers including Schwab have enticing options for "commission-free" in addition to unlimited trades with added fees of $8 to $10 per trade when you exceed commission-free trade limit.

Lots to investigate but seems to me that TSP is not the only good option for those of us who are retired and could transfer our whole balance somewhere that wouldn't keep us in a jail of only two trades per month with no options for more trades even if we are willing to pay. I'm not going to go to Zecco Brokerage since I researched that a while back and heard some very negative things. Even BAnk of America's reputation isn't that great but Vanguard or Fidelity or even Schwab seem like they wouldn't be too risky.

The other issue is that if economy/stock market changes, these companies could probably easily eliminate these "25 commision free trade" policies but I don't think we would be any worse off than we are with TSP limit of 24 commission free trades. Of course there are probably some type of fees to do the transfer into and out of these IRA's so don't want to get stuck because I would be required to pay a big fee to move away.

Anyway, I'm kind of excited. I have a strategy that sometimes requires 4 or 5 trades per month according to my tracking I've done recently. So this would fit nicely. Oh, and did I mention, because these are ETFs, the requirement that we buy and sell only at close of business would no longer apply with Vanguard, Fidelity or Schwab, etc. ETFs can be bought and sold during the middle of the day or whenever just like regular equities.

[reality88]

I have been using Fidelity to do this for about 6 months now. I only trade the commission free ETFs. There are several small company ETFs that I trade and the IVV mostly. I have not had any problems with the reliability of the website but trading is a bit cumbersome and more complicated that it has to be compared to Ameritrade. I wish we had the option to use Fidelity or Vanguard for our TSP accounts, the ability to jump in and out when needed would make me sleep better at night. You still have to be careful because the “wash sale” rule applies to ETFs but you can easily find a different ETF to get back into but it may not be a free trade.

[ralpharch]

It seems to me the trade fee ($8-$10? if not free) is less than the "buy -sell" spread risk - which we don't have with TSP. Looking at one of the Fidelity EFTs it looked like that spread was widely variable to the plus or minus at any given time - but long term average for one year was 0.02% On $100k that would average $20 so its greater than the trade fee and unpredictable. The gross operating expense of .65% is low but still higher than the TSP operating expense. So you do sacrifice something for this trading flexibility

http://screener.fidelity.com/ftgw/etf/g ... =ONEQ#risk

[elphaba]

It seems to me the trade fee ($8-$10? if not free) is less than the "buy -sell" spread risk - which we don't have with TSP. Looking at one of the Fidelity EFTs it looked like that spread was widely variable to the plus or minus at any given time - but long term average for one year was 0.02% On $100k that would average $20 so its greater than the trade fee and unpredictable. The gross operating expense of .65% is low but still higher than the TSP operating expense. So you do sacrifice something for this trading flexibility

http://screener.fidelity.com/ftgw/etf/g ... =ONEQ#risk

It only takes one of those days when you see the market falling severely and it is past 11am (in Central zone) so you know you have to wait til C.O.B. of the next day before your IFT can effectively be implemented. It is then when you could truly appreciate that you could save the operating expense for the entire year if you could just get out more quickly on one key day.
[Or the other way around, to be able to buy when the market is rising...] Bottom line, not to have to be in the TSP Jail.

Also, FYI, I didn't find an operating expense number of .65% for Fidelity - http://www.benzinga.com/117895/the-26-c ... t-fidelity

All but 1 or 2 are significantly less than .65% - maybe average around .22% (yes higher than TSP) - The higher Fidelity expenses are associated with global and international ETF's, something I would probably stay clear of since I don't dabble much in the I fund. Though given that if I moved my money to Fidelity, I wouldn't be subject to the machinations of the TSP board in adjusting the I Fund price to account for international markets, I might trade more in International stuff. I'd have to do more tracking to see.

Sad that the TSP board chose not to implement the recommendation of one of its board members (a member of the military - can't remember which branch) - they recommended that TSP should wait until 7am the next morning after international markets are closed before posting the price and thus wouldn't have to use additions and subtractions based on the US dollar and other variables. Just use the price as is. Guess this was too simple and straightforward.

But the info you have posted does make me think that the free trades are more significant in the equation. If I transferred my $100k + balance from TSP to Fidelity, I could get the 200 free trades, that is 10 per year for the next 10 years (if they allow it to be spread out), about when I will have to take the whole balance out of TSP anyway plus the 25 free trades, total of 35 per year - gotta check how they pro-rate this.

But I still want to check on how easy it is for me to transfer from Fidelity to somewhere else (looks like Schwab is rapidly becoming a major player but still not as big as the big guys). Also want to see how easy it would be for them to weasel out of the "25 free trades" option..

And p.s. Doesn't the buy-sell risk work in both directions? could be in our favor so best not to count the entire amount - not necessary to assume worse case - but if all the trades are free [35 count or less], seems to me then that one doesn't even need to consider the $8-10 transaction fee charged by the broker.

I know I'm being pretty loose with this. I'm convincing myself that the real details I need to focus on is what is the real gain I would see (do I think) by being able to trade without having a cut off time by 11am and not knowing the real price until C.O. B. and having the option to trade more often on those few occasions when my strategy tells me it would be a good thing. I need to do some back-testing.

Thanks VERY much for taking the time to post your ideas, given me more to think about but it is still sounding good to me at least worth investigating further.

[crondanet5]

The Boston finanacial advisor I listen to urges investors not to be concerned about fees if they can make more money by doing so. The difference in costs between TSP and Fidelity seem to fit this scenario. Elphaba I am with you that it makes more sense to be able to sell the ETF and avoid a loss than it does to leave the money in the TSP program. I also have some Fidelity accounts. When it comes to 401k accounts you may find you need to settle the transaction before Fidelity will allow you to trade the money again. (4 days). Another thing you should research with Fidelity. Great post.

[ralpharch]

... The gross operating expense of .65% is low but still higher than the TSP operating expense. So you do sacrifice something for this trading flexibility

http://screener.fidelity.com/ftgw/etf/g ... =ONEQ#risk

...
Also, FYI, I didn't find an operating expense number of .65% for Fidelity - http://www.benzinga.com/117895/the-26-c ... t-fidelity

....
And p.s. Doesn't the buy-sell risk work in both directions? could be in our favor so best not to count the entire amount - not necessary to assume worse case - but if all the trades are free [35 count or less], seems to me then that one doesn't even need to consider the $8-10 transaction fee charged by the broker.
....

I am a newbie to this, but am very interested in getting out of jail as well. I don't necessarily understand the expenses - but on the page I linked it notes a "Gross Expense Ratio: 0.65%" for the ONEEQ/ETF and on the page you linked it notes a 0.30% expense ratio for the same EFT. As crodanet5 notes the expenses/fees don't mean anything if you are getting a positive return on these funds due to the flexibility.

I think you are right on the spread risk - it floats both ways. My point was that it dwarfs the trading fee so any given buy/sell the amount can get fairly large