Yesterday, my trigger order to buy 2 shares of FEZ was fired and it activated a limit order to buy the stock. In my ROTH IRA account I had 80 dollars available cash (otherwise I am fully invested) and I decided to put that cash into work by buying a dividend paying, commission free ETF.
This purchase is somewhat an experiment to me. If it will work the way I want (allows me to be adding small amount of shares of (basically) a stock into my account and I won’t get hurt by commissions, than this would be a great wealth building strategy.
We can use this strategy to save small amounts of cash, for example $50 or $100 dollars a month, and invest it immediately into a dividend paying ETF. That would give us nice dividends every quarter. This ETF yields 3.4% on dividend, so saving small money into this ETF may provide a lot better return than saving money in a savings account where we can receive 0.90% APY only.
Of course with this ETF, or any other similar investment, we are trading off security provided in savings accounts with a higher price volatility of a stock market. Taking this risk can get us a better return. I think, for long term investment horizon, this trade off is acceptable. At least for me.
Yesterday I bought the following into my ROTH IRA account:
| 05/14/2013 09:51:23 Bought 2 FEZ @ 36.0399
As I will be adding more cash to my ROTH IRA account, I will be saving it into this ETF. As long as I save enough cash, for example $800 – $1000, I will sell a portion and move it into another investment.
To do that, there are two things I have to pay attention to:
- Price appreciation
- 30 calendar days holding period
To sell a portion of the holdings in this ETF (or any ETF), we can do it only if the ETF is showing some profit or be break even. In that case we would have no loss, since buying or selling a commission free ETF will cost us nothing. If the ETF will be in red numbers, we have to wait or sell only those lots which are showing gain (using FIFO – “first in, first out” method) and keep those shares which are in paper loss.
One condition to trade commission free ETFs with your broker will be some limitation in when you can sell the stock. Typically it is 30 days from the purchase. If you sell before this redemption period, you will be hit retrospectively with a commission fee which, depends on broker, is $19.99 (short-term trading fee). It pays to keep track of your purchases in a spreadsheet to see when your trade will be released and available for sell.
| Before you decide investing into commission free ETFs check your broker whether they offer such investment vehicles and if so, what are the conditions and requirements.
Before you decide investing into commission free ETFs check your broker whether they offer such investment vehicles and if so, what are the conditions and requirements.
Happy wealth building!