Your Survival Guy

Preparing your investments and family for when disaster strikes.

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Breaking News: Fidelity’s $0 Commissions Done the Right Way

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By Ilya Images @ Shutterstock.com

Well, it’s not exactly breaking news that Fidelity has said it will offer free online trading. What is worth noting is they will not be making money off of your cash by lending it out as was explained here:

You may have seen that Charles Schwab has reduced its commissions to $0.

But when you dig a little deeper you realize there’s a catch. As it turns out it’s free but Schwab gets to use your cash, lend it out, and pocket-the interest you could have made.

“Schwab doesn’t use money-market funds or short-term Treasury funds, which could earn nearly 2% at recent rates,” explains Jason Zweig at the WSJ. “Instead, it shunts the cash into Charles Schwab Bank, which currently pays 0.55% on the money—and then turns around and lends it out at roughly 2%.”

Clearly you can see Schwab isn’t working for free.

What this means for you is not a whole lot unless you trade all of the time and will perhaps see a small reduction in friction costs.

It has been my experience that investors end up with a rat’s nest of positions they end up buying for “free,” and never know when to sell.

At the heart of the race to $0 is the value proposition for investment advice. Free trades are not advice. Free trades are a way to keep or gather accounts.

Your goal is to achieve investment success, not free trades.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.