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Is it worth it to pay 5% to my broker? Small-timer here

post #1 of 36
4/17/09 at 11:46am
Thread Starter 
So I'm a college student right now, and have a few $ in a Roth IRA and also a seperate mutual fund. My Edward Jones guy charges 5% I think when I put money in, and then a yearly fee that amount to maybe 2%. Should I continue doing this even as I start making more money (meaning paying him more) or is there a better alternative where I can invest in these type of funds on my own for free? EDIT: they are mutual funds I think only EJ sells, whether or not they're any good. Can I get mutual funds on my own? I know I have to pay $ to make trades in Scottrade for example, so sounds like I'll be paying either way. Also, he's an older guy...when he retires, do I just get transferred to closest other EJ guy? Thanks guys, I was going to go add a couple hundred bucks today, but not sure if I could do better by getting fewer fees elsewhere.
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post #2 of 36
4/17/09 at 11:51am
waaaay too big of a charge
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post #3 of 36
4/17/09 at 11:53am
Thread Starter 
Quote:
Originally Posted by constant struggle View Post
waaaay too big of a charge

Alternative?
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post #4 of 36
4/17/09 at 11:59am
I use an online brokerage. Trades cost me $10. No commissions.
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post #5 of 36
4/17/09 at 12:01pm
Thread Starter 
Quote:
Originally Posted by musicguy View Post
I use an online brokerage. Trades cost me $10. No commissions.

Can you also buy mutual funds, or just individual stocks?
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post #6 of 36
4/17/09 at 12:08pm
I choose to select my own portfolio, especially in today's economic climate, but I understand that is not for everyone. Yes, my brokerage offers mutual funds. Here's a list: http://www.sharebuilder.com/sharebui.../Overview.aspx I imagine other online trading sites offer mutual funds also.
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post #7 of 36
4/17/09 at 12:22pm
I wouldn't pay the guy at Edward Jones and I tend to stay away from mutual funds (you're paying the fund manager). When I do invest in mutual funds I look for low expense funds. Some brokers and fund managers add value (i.e. outperform the market after fees) but most don't and you only know which ones have performed well in the past; not which ones will outperform going forward.

I prefer exchange traded funds (ETFs). Their costs are generally lower than mutual funds while offering diversification. Here is an excerpt from a recent WSJ article titled "The ABCs of ETFs":

Still, both types of ETFs can edge most active managers on longer-term performance. That contradicts a common belief that index-fund investors must settle for average. In truth, most active funds fail to beat their benchmark in a given year, so index funds by nature tend to land in the upper half of their categories over long periods.

For instance, iShares Dow Jones U.S. Index is in the top 42% of its peer group of large-blend funds over the past year, the top 56% over three years and the top 39% over five years, according to Morningstar.

"Indexes aren't average," says financial adviser Harold Evensky of Evensky & Katz in Coral Gables, Fla., who switched to ETFs years ago and nowadays favors iShares Russell 3000 Value and iShares S&P MidCap 400 Value Index Fund (IJJ) as the centerpieces of a diversified portfolio.

"If you've got 100 managers all playing in the same sandbox, the index fund has to be in the top half because it has less expenses," he says. "And since the active managers in the top half don't stay there all the time, the index over time gradually moves up.

"If I can be guaranteed funds that are always in the top half, that's pretty good," he adds, "as opposed to trying to pick one that's going to be on top but may also end up on the bottom."

Since most ETF portfolios are based on published indexes, asset allocation -- which many financial advisers say accounts for most of an investor's return -- isn't such a guessing game. Says Kevin Ellman, head of financial-advisory firm Wealth Preservation Solutions in Ridgewood, N.J., who uses ETFs almost exclusively in client portfolios: "We're more convinced than ever that active management is not worth the expense."
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post #8 of 36
4/17/09 at 12:24pm
Thread Starter 
Quote:
Originally Posted by tjc4golf View Post
I wouldn't pay the guy at Edward Jones and I tend to stay away from mutual funds (you're paying the fund manager). When I do invest in mutual funds I look for low expense funds. Some brokers and fund managers add value (i.e. outperform the market after fees) but most don't and you only know which ones have performed well in the past; not which ones will outperform going forward.

I prefer exchange traded funds (ETFs). Their costs are generally lower than mutual funds while offering diversification. Here is an excerpt from a recent WSJ article titled "The ABCs of ETFs":

Still, both types of ETFs can edge most active managers on longer-term performance. That contradicts a common belief that index-fund investors must settle for average. In truth, most active funds fail to beat their benchmark in a given year, so index funds by nature tend to land in the upper half of their categories over long periods.

For instance, iShares Dow Jones U.S. Index is in the top 42% of its peer group of large-blend funds over the past year, the top 56% over three years and the top 39% over five years, according to Morningstar.

"Indexes aren't average," says financial adviser Harold Evensky of Evensky & Katz in Coral Gables, Fla., who switched to ETFs years ago and nowadays favors iShares Russell 3000 Value and iShares S&P MidCap 400 Value Index Fund (IJJ) as the centerpieces of a diversified portfolio.

"If you've got 100 managers all playing in the same sandbox, the index fund has to be in the top half because it has less expenses," he says. "And since the active managers in the top half don't stay there all the time, the index over time gradually moves up.

"If I can be guaranteed funds that are always in the top half, that's pretty good," he adds, "as opposed to trying to pick one that's going to be on top but may also end up on the bottom."

Since most ETF portfolios are based on published indexes, asset allocation -- which many financial advisers say accounts for most of an investor's return -- isn't such a guessing game. Says Kevin Ellman, head of financial-advisory firm Wealth Preservation Solutions in Ridgewood, N.J., who uses ETFs almost exclusively in client portfolios: "We're more convinced than ever that active management is not worth the expense."

Thanks, I've heard about ETF's before. Would I be able to buy them through Scottrade or similar?
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post #9 of 36
4/17/09 at 12:26pm
I use multiple brokerages (something or other about baskets of eggs and chickens). One of them is indeed sharebuilder. I've had no problems at all, and the price is right for what you get. Probably one of the best options for smaller accounts, as you won't chew up all your money with fees.

I use another brokerage for the bulk of my money, they charge a higher fee, have stringent security, etc. I also have far more options available to me through them than I do with sharebuilder. They are a traditional brokerage but they do the online self directed option. I can still call and get advice though and I still get all the daily/weekly/monthly publications with their research.

That said, I'm not naming them because I have problems way too frequently for how much I pay per online trade. They lost the copies of my ID, and forgot to call me about it, so they locked my account. They screwed something else up, forgot to call me about it, so they locked my account. Etc. I call and they straighten it out right away, but these aren't problems they should be having.
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post #10 of 36
4/17/09 at 12:33pm
Quote:
Originally Posted by longskate88 View Post
Thanks, I've heard about ETF's before. Would I be able to buy them through Scottrade or similar?

Yes
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post #11 of 36
4/17/09 at 12:36pm
Here is the benefit of a long wall st. career:

- read A Random Walk Down Wall Street
- dump edward jones
- open up an account with vanguard
- buy low cost index funds
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post #12 of 36
4/17/09 at 12:43pm
Thread Starter 
Thanks guys, I just logged into my Scottrade for the first time in a couple years. Very overwhelming. Are the fees you pay to EJ kind of the trade-off you make, since in that case it's up to them to watch your money (I know they probably don't, but it's a nice thought) as opposed to doing it solely on your own?
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post #13 of 36
4/17/09 at 2:13pm
Quote:
Originally Posted by vinouspleasure View Post
- open up an account with vanguard
- buy low cost index funds

this was going to be my exact suggestion
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post #14 of 36
4/17/09 at 2:26pm
Thread Starter 
Quote:
Originally Posted by yerfdog View Post
this was going to be my exact suggestion

Are "low cost index funds" ETF's? They sound similar, each one seems to perform at about the same level as the overall market, correct? Can I buy them through Scott?
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post #15 of 36
4/17/09 at 2:56pm
I agree with VP about Vanguard. Edward Jones is fleecing you. With Vanguard, you'll have no transaction fees and low fund costs.
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