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New buy in my ROTH IRA – RWX a commission free saving

When I started dividends investing in 2012 I had no goal or strategy and I was purchasing stocks with every penny I had. It was long before I realized how futile way of investing this was. Whenever I received a few dollars in dividends or contributed $50 to my ROTH IRA account, I immediately invested that cash into a dividend paying stock.

It was tempting as I hate my cash sitting in the account doing nothing. I wanted every penny to bring in the dividends.

I didn’t see how expensive that was.

For example, if I purchased a stock for $44.00 a share, I got hit by $9.95 commission. Such transaction got me into a staggering 22.61% loss! The cost basis of such transaction was immediately $53.95 a share.

The stock would have to move from $44.00 a share to $53.95 a share to just get break even. A horrible deal, right? And yes, I was doing that!!!

Over time I found that an acceptable amount to invest is at least $1,000 a transaction or of course more if you have more. But a picture of $800 sitting in my account waiting until I save another $200 to be able to invest and doing nothing was painful. To me this wasn’t acceptable. Mainly, at times when saving another $200 could take me a few months (at some point I could only save $50 a month!).

So, what to do if you can save only $50 monthly and you do not want your money sitting in the savings account, making puny 0.90% or in your brokerage account making 0.001% when you can make 3%?


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A solution could be investing into commission free ETF paying dividends. To me, RWX REIT commission free ETF is the answer to that question. Of course, you need to verify with your broker whether they offer a commission free ETFs and which pay dividends.

RWX is one which does that. I can buy a single stock and pay nothing on top of my purchase price and the fund pays 2.9% annual dividend. Now, anytime I receive a cash or contribute to my ROTH IRA account I buy RWX. I do that as long as I save $1,000. Once the total market value of RWX in my portfolio is $1,000 or more, I sell shares of RWX and buy my desired stocks. A few weeks ago I used this strategy to purchase COP stock.

Dividends received

Last week, I received dividends from the following stocks:

AGNC American Capital Agency $31.02
MA MasterCard $2.56

These dividends increased my free cash in my account to a level allowing me to buy one share of RWX.

RWX new purchase

For tomorrow (Monday 11th, 2015) I placed a buy order to buy one share of RWX. After the purchase, I will own 14 shares and my current market value will be $579.28. I will be half way to saving the desired $1,000 limit for a new stock purchase. While waiting to save the rest, I will collect 2.9% dividend.

RWX is not a dividend investment to me. It is a cheap saving vehicle, since I do not use a DRIP.

Why I do not use the DRIP?

I want to be free in choosing my next stock purchase and use all collected dividends and contributions to do that. With a DRIP, I will be limited to investing contributions only. And I do not want that.

What do you think about this strategy? How do you deal with little cash in your account? Do you invest it or let it sit until you accumulate enough to buy a new stock?
 
 





4 responses to “New buy in my ROTH IRA – RWX a commission free saving”

  1. DivGuy says:

    My only “problem” with ETFs is that they don’t beat my benchmark while I do with my dividends portfolio… Some online broker offers a couple of free trades so I would probably be looking upon that before the ETF. However, I read on previous comments that you made nice profit with it, so I might be wrong too! ;-)

    Cheers!

    Mike

    • Martin says:

      Hi, Mike, I hear you. That’s why I do not use ETF’s as an investment vehicle, only to save money and collect dividends while waiting. Once I save enough I sell it and buy a dividend stock. So it is purely held for saving purposes only.
      You are right that some brokers offer free trades, but those are usually promotional ones and they do not last forever. after that you will have to make a decision, let your cash sitting in an account making nothing or find a strategy where to save it and make some decent return while waiting.

  2. Scott says:

    Hi Martin,

    Sounds like a solid strategy for your Roth. I just started doing something similar, but to a much smaller extent. At this point I have about $7000 a year to work with in my Roth ($5500 in contributions and $1500 in dividends). Currently I’m just reinvesting the dividends back into the stocks they came from. I’ll keep doing this until the monthly dividends are approaching a more reasonable amount to be selective in buying a single stock.

    The problem I recently ran into is that I had about $110 leftover as cash just sitting in the account. Rather than earn 0.01% as cash, I bought a couple shares of Schwab’s commission free dividend ETF, SCHD. Now I still have about $20 sitting unused but at least the other $80 is earning a little bit more. Come January, I’ll sell SCHD and combine it with my annual contribution.

    I was debating using a low cost mutual fund instead but decided to go with the ETF route.

    Out of curiosity, why did you pick RWX? Unlike 2013, it now seems to have a similar yield as the other dividend paying ETFs, like SCHD or VIG, but on the downside has a higher expense ratio.

    • Martin says:

      Hi Scott, it is a good idea actually to reinvest the dividends back into the stocks which generated it until you can be selective. I didn’t think about it that way, so thanks for the tip. As I was thinking about it, it may be a good approach, but it will still leave my contributions which are smaller than I would like to see sitting in the account doing nothing. Picking up contributions and dividends provide me with the minimum amount faster.

      I picked RWX many years ago as I was looking for REIT exposure and over time I made money with this ETF, while other ETFs lost me money. I also used FEZ, and EWA, but I mostly lost money with those so I decided to stay with RWX. I hold it a few months only anyway and so far I made around 3 – 4% capital appreciation and collected 3% dividend. There was only one instance when I was selling with a small loss, like 0.8%, when liquidating RWX to buy a stock. So until this ETF keeps making me some money I’ll stay with it.

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