2 Ways I Get Free Stock Trades and Peace of Mind

I’ve found two ways to buy stocks commission free.  I’m always looking for ways to cut costs and maximize my investments.  Here is how I do it:

 

#1.  LOYAL3

If you’ve been following my blog, you should be familiar with LOYAL3. They provide commission free trades and allow you to purchase fractional shares starting as low as $10.  For example, McDonald’s (MCD) is currently $100 per share.  With LOYAL3, you can buy as little as $10 worth of MCD which would you give 0.1 shares of MCD.  Not a bad way to go if you can’t execute large trades or don’t want to see your money go to fees.

 

#2.  Dividend-Paying Trick

Technically, this isn’t a free stock trade unless you can handle delayed gratification.  What I do is purchase enough shares of a stock so that my first dividend payment will cover the commission fee.  I use OptionsHouse because they only charge $4.75/trade which helps me recoup my money quickly.

Here’s an example:

1 share of MCD is currently $100.  Its quarterly dividend is currently $0.81.  To earn enough money from its next dividend payment to cover the commission I need at least $4.75 in dividends from MCD.  Some simple division of $4.75 by $0.81 gives 5.86.  I need to round 5.86 up to 6 to determine how many shares of MCD I need to buy.  If I buy 6 shares of MCD, my first dividend payment will be 6 x $0.81 = $4.86 which covers the commission fee of $4.75.

Like I said, technically this isn’t free but I look at it as a rebate that I have to wait for in order to be repaid for my trade costs.

 

Using these two methods, I can trade with peace of mind and not have to worry about getting raked over the coals by fees.

3 Reasons Why I Bought Stock in Kraft Foods (KRFT)

Well, I finally opened and funded my OptionsHouse account.  I’ll write more about my OH experience later.  But for now, I’d like to talk about my first purchase using my new OH account.  I decided to go with KRFT for the following 3 reasons:

 

#1. Product Line

I follow the Buffett school of thought where an investor should understand a business and should also find companies with “moats” around them.  I feel that KRFT fits into both of these categories.

Some quick facts on Kraft Foods:

– 98% of North American households have Kraft products in their pantry or refrigerator

– $18 billion in annual sales

– 10 Kraft brands bring in more than $500 million net revenues

– Kraft has well-known brands such as Planters, Philadelphia, Kool-Aid, Oscar Mayer, Cracker Barrel, Maxwell House, Jell-O, Kraft Macaroni & Cheese and more

 

#2. Low P/E Ratio

Per Morningstar, the current P/E ratio is 13 versus the industry average of 20 and S&P average of 18.  This might be a bargain in a market where P/E ratios keep pushing higher.

 

#3. Nice Dividend Yield

KRFT currently has a yield of about 3.5% which comes out to $0.525 per quarter.

 

While KRFT probably has its own flaws, I feel comfortable in this latest buy.  I hope that KRFT will be a reliable, steady, dividend-paying stock for years to come.

Opened New Roth IRA at OptionsHouse

I opened a new Roth IRA account with OptionsHouse today because I want to reduce my trade costs.  OptionsHouse charges $4.75 per trade versus almost $9 at my other financial institution.  Once my initial funds move into my OH account and I execute a stock purchase, I’ll follow up with a review.  I hope it works out because the $4.75 commission is hard to beat.

“A Penny Saved…”

Benjamin Franklin wrote in Poor Richard’s Alamack that “a penny saved is twopence dear”.  I learned the saying as “a penny saved is a penny earned” which is apparently a misquotation (thanks Wikipedia).  Regardless of how you say it, the adage holds true with investing and saving.  I’ve noticed that my bank for more than a decade is not necessarily the best deal in town (or online).  I’ve been a loyal customer due to my bank’s convenience, good customer service, and user-friendly website.  However, the more I look under the hood I realize I could do better elsewhere when it comes to saving and investing.

For savings, I searched for a good APY for my emergency fund.  While savings accounts provide terrible returns, not all savings accounts are equally terrible.  I found two candidates for my new savings account:  Barclays and Ally.  Barclays currently provides a slightly higher APY at 0.90% vs. Ally’s APY at 0.87%.  While these APY’s seem small in comparison to investment vehicles, they are still 5 to 6 times greater than my current savings account.  I tried creating an account at Barclays first but was alerted at the end that I needed to call customer service to finish my application.  I called and waited about 5 minutes and lost patience for the moment.  Next, I applied online with Ally which receives good reviews on several finance websites.  After a few minutes of completing the online savings account application, I was on my way to becoming an Ally customer.  Just like that, I was able to increase my savings account returns by 5 times.

My next and greater frustration is with the commission fees of my currently unnamed financial institution which sit at almost $9 per trade.  Again, with some quick research I found a lot of good competition available.  I haven’t opened an account yet, but I’m leaning towards starting a new Roth IRA at OptionsHouse which executes trades at $4.75.  That is almost a 50% savings.  Once my transition is complete, I’ll lose the one-stop convenience with my current financial institution in exchange for savings and higher returns.

It feels good to save a little money with minimal effort.  You have to appreciate the competitive options that the online environment has created.