Author Topic: No commission brokers, DIY ETFs possible now  (Read 1037 times)

jim555

  • Magnum Stache
  • ******
  • Posts: 2609
No commission brokers, DIY ETFs possible now
« on: October 21, 2019, 08:25:39 AM »
Since various brokers are now no commission it becomes possible to own stocks directly in brokerage accounts and eliminate fees entirely.

The S&P 100 equal weight ETF has a expense ration of 0.40%.  On an account with $250,000 this would be $1,000 a year, each and every year.  It is not that difficult to enter 100 trades to set up the positions and every year do some maintenance to tend to your garden of stocks.  This approach has some advantages.  You completely control what gets distributed, no more end of year surprises from mutual funds.  You can surgically decide how many gains or losses to realize.  You will get all proxy notices directly from the companies you own.  No need to worry about another party that can pull shenanigans such as lending out shares from a fund or ETF. 

You could create your own weighting system, no more over weighting Apple if you don't want it that way.  You may need to deal with corporate actions such as tenders and reorgs, but it isn't that big of a deal.

Stimpy

  • Stubble
  • **
  • Posts: 217
  • Age: 37
  • Location: Middle of Nowhere
Re: No commission brokers, DIY ETFs possible now
« Reply #1 on: October 21, 2019, 03:32:01 PM »
Now I am a fan of individual stok investing, within certain limits.  (Long term, and dividend paying)  So I can see the why this seems interesting.   But lets be honest.  Most people, whom are going to invest in this type of concept are better off just buying an index instead.

Why?  You don't have to design it, you don't have to research and monitor it for when a stock no longer fits your criteria, you don't have to spend time looking over corporate actions(Meetings).   etc...

In short, no reason to do this unless your already stock picking.  In which case you ummm.... already have designed your portfolio and your 'index' is your set of stock picks.

If you do decide to do this, let us know how it goes, AND how much time you spend on it.   I suspect you'll(or others who try this) will go back to buying VTI(or similar) after a year or so but I would love to be proved wrong.

Buffaloski Boris

  • Handlebar Stache
  • *****
  • Posts: 2121
Re: No commission brokers, DIY ETFs possible now
« Reply #2 on: October 21, 2019, 03:54:10 PM »
I’ve been commenting on this lately and agree that this is awesome is because what you can do is custom design your index. Charles Schwab just announced that they’re going to do fractional shares as well. So we’re very close to being able to build an “index” based on whatever criteria we want.

One of my biggest objections to the large cap indexes is that almost all are cap weighted. My personal index won’t be cap weighted. I don’t want to own stocks with crazy high PE ratios. So my personal index won’t include them. And so on. The only thing missing is an easy app that will pick out the stocks based on my criteria. Give it a year and some clever broker will develop the app.

Buffaloski Boris

  • Handlebar Stache
  • *****
  • Posts: 2121
Re: No commission brokers, DIY ETFs possible now
« Reply #3 on: October 21, 2019, 04:12:00 PM »
Now I am a fan of individual stok investing, within certain limits.  (Long term, and dividend paying)  So I can see the why this seems interesting.   But lets be honest.  Most people, whom are going to invest in this type of concept are better off just buying an index instead.

Why?  You don't have to design it, you don't have to research and monitor it for when a stock no longer fits your criteria, you don't have to spend time looking over corporate actions(Meetings).   etc...

In short, no reason to do this unless your already stock picking.  In which case you ummm.... already have designed your portfolio and your 'index' is your set of stock picks.

If you do decide to do this, let us know how it goes, AND how much time you spend on it.   I suspect you'll(or others who try this) will go back to buying VTI(or similar) after a year or so but I would love to be proved wrong.

 Here is what I see in the Future world of “boutique Index investing”:

- you’ll be able to buy fractional shares of whatever you want. It’ll be interesting to see how that works with micro caps and foreign companies.

-you’ll be able to program your stock purchases based on detailed criteria. Say PE ratios within certain ranges, excluding some industries/ companies while including others, with or without dividends and what yields.  You’ll be able to sell based on set criteria as well.

-you’ll be able rebalance your portfolio on a schedule you set.

-investment advisors will be adding value in how to program the purchase and sale criteria. This part will get very interesting as advisors compete.

-things get downright fascinating once brokers allow their clients to do lots of transactions very quickly.

-I don’t see that this need be all that time consuming. Once you set a criteria that you’re happy with, it could be very low maintenance.

-index funds will still have their appeal to those who don’t want to be bothered by putting together an index.

Toothpick

  • 5 O'Clock Shadow
  • *
  • Posts: 19
Re: No commission brokers, DIY ETFs possible now
« Reply #4 on: October 21, 2019, 10:15:19 PM »
Since various brokers are now no commission it becomes possible to own stocks directly in brokerage accounts and eliminate fees entirely.

The S&P 100 equal weight ETF has a expense ration of 0.40%.  On an account with $250,000 this would be $1,000 a year, each and every year.  It is not that difficult to enter 100 trades to set up the positions and every year do some maintenance to tend to your garden of stocks.  This approach has some advantages.  You completely control what gets distributed, no more end of year surprises from mutual funds.  You can surgically decide how many gains or losses to realize.  You will get all proxy notices directly from the companies you own.  No need to worry about another party that can pull shenanigans such as lending out shares from a fund or ETF. 

You could create your own weighting system, no more over weighting Apple if you don't want it that way.  You may need to deal with corporate actions such as tenders and reorgs, but it isn't that big of a deal.

I feel like M1Finance has had this for awhile.

"It is not that difficult to enter 100 trades to set up the positions"
Yeah, it's easy to do so.  Set up position sizing, each stock to whatever percentage you want.  Rebalance whenever you want.  Fractional shares make this possible. 

Stimpy

  • Stubble
  • **
  • Posts: 217
  • Age: 37
  • Location: Middle of Nowhere
Re: No commission brokers, DIY ETFs possible now
« Reply #5 on: October 23, 2019, 07:49:00 AM »
Now I am a fan of individual stok investing, within certain limits.  (Long term, and dividend paying)  So I can see the why this seems interesting.   But lets be honest.  Most people, whom are going to invest in this type of concept are better off just buying an index instead.

Why?  You don't have to design it, you don't have to research and monitor it for when a stock no longer fits your criteria, you don't have to spend time looking over corporate actions(Meetings).   etc...

In short, no reason to do this unless your already stock picking.  In which case you ummm.... already have designed your portfolio and your 'index' is your set of stock picks.

If you do decide to do this, let us know how it goes, AND how much time you spend on it.   I suspect you'll(or others who try this) will go back to buying VTI(or similar) after a year or so but I would love to be proved wrong.

 Here is what I see in the Future world of “boutique Index investing”:

- you’ll be able to buy fractional shares of whatever you want. It’ll be interesting to see how that works with micro caps and foreign companies.

-you’ll be able to program your stock purchases based on detailed criteria. Say PE ratios within certain ranges, excluding some industries/ companies while including others, with or without dividends and what yields.  You’ll be able to sell based on set criteria as well.

-you’ll be able rebalance your portfolio on a schedule you set.

-investment advisors will be adding value in how to program the purchase and sale criteria. This part will get very interesting as advisors compete.

-things get downright fascinating once brokers allow their clients to do lots of transactions very quickly.

-I don’t see that this need be all that time consuming. Once you set a criteria that you’re happy with, it could be very low maintenance.

-index funds will still have their appeal to those who don’t want to be bothered by putting together an index.

I think you misinterpret the time it takes to "program your stock purchases based on detailed criteria."   It will come down to stock picking and research, cause who wants a Kodak or GE or <insert current bad egg here> in their 'Boutique Index' which again, if your already making those decisions then your already technically making your own index.   I don't expect people will start making this a thing.   They might redo some index's that people already have (example custom index I find interesting but would not remake - https://www.motif.com/motifs/dvks-basic-dividend-growth-etf-mE4rczEQ) but that's about it

Again, those whom are already doing this (ie stock pickers) will keep doing this, just cheaper.   Might it bring a few more in... sure.  But I don't see it being something most current indexers will start doing.

Car Jack

  • Handlebar Stache
  • *****
  • Posts: 1836
Re: No commission brokers, DIY ETFs possible now
« Reply #6 on: October 23, 2019, 08:12:53 AM »
Not at all a bad idea.  What I'd want to do is choose all non-dividend paying stocks.  Getting diversified would be difficult, but of course, these stocks could be offset with ETFs elsewhere.  Why non-dividend?  Zero tax until I decide.  With dividends, you pay tax and you cannot get around it.  I'm on the edge of income phase out for Roth.  Controlling whether dividends are paid or not matters to me.

Buffaloski Boris

  • Handlebar Stache
  • *****
  • Posts: 2121
Re: No commission brokers, DIY ETFs possible now
« Reply #7 on: October 23, 2019, 03:45:38 PM »
Not at all a bad idea.  What I'd want to do is choose all non-dividend paying stocks.  Getting diversified would be difficult, but of course, these stocks could be offset with ETFs elsewhere.  Why non-dividend?  Zero tax until I decide.  With dividends, you pay tax and you cannot get around it.  I'm on the edge of income phase out for Roth.  Controlling whether dividends are paid or not matters to me.

I anticipate you'll be able to do all that and more within the next few years.  And it'll be cheap. I look forward to drilling down and designing the equity portfolio I want.

I believe that this is going be one of the next big things for investing.  Ideally, you'll be able to trade in much the same way as large institutional investors, while retaining the unfair advantages of being an individual investor.