Do you know that you can invest for free?
Well, almost! There’s no catch! You can open a brokerage account at Vanguard at no charge [but please read How to Open a US Brokerage Account While Abroad before trying this] and buy an ETF that owns thousands of stocks. And the annual charge for the ETF is less than or right around 1/20th of 1%.
Vanguard offers ETF’s like the total US stock market ETF (VTI) and world stock market ETF (VT). You can buy one share of VTI for $125. Vanguard will charge you an annual fee of .05% for this ETF. (Schwab has a similar ETF for .03%!!) This is 6 cents a year. Okay, it is actually 6.25 cents a year. You can buy one share of VT for $75 a share. The annual charge for this ETF is .14%. This is 10 cents a year.
Schwab has a similar ETF for the US stock market, the Multi-Cap Core (SCHB) for just .03%!
VTI owns 3700 US stocks. VT owns 7700 stocks – worldwide. Amazing! You can own a microscopic sliver of thousands of companies around the world for the cost of 1 dime. (Of course, you have to have the $75 to invest in the ETF). Isn’t this astonishing? Think of all the innovations over the years that have come together to make this possible.
Two forces have merged to make this possible
First is the obsession with low-cost, broadly diversified investing promoted by John Bogle, Vanguard, and others with a similar passion. They have led the way on this and firms such as Schwab, Blackrock and others have followed. (Even though Bogle initially did not support Vanguard’s efforts to offer ETF’s, he has promoted the principals which have made it possible).
Second would be the advancements in technology. The millions and billions of transactions that make this happen at such an amazingly low cost are only possible due to rapidly evolving advancements in computing and related technology.
Not all accounts are free
Of course, there are some accounts that will still have fees that you likely can’t avoid. For example, employer-based retirement plans. Many employees have to pay for the administrative costs of their company-sponsored retirement plans. Also, many overseas investors have to use more expensive brokerages to purchase low-cost ETF’s. But in time, these fees will come down as well.
For the most part…
People shouldn’t pay more than about .10% for their investments
There is no reason to pay advisory firms or even the new lower cost robo advisers to “watch” or “manage” your money. In the long run, I think these fees are simply unnecessary. The odds are low that they will provide more benefit than their costs.
These low-cost investments are fantastic! They provide simple options for regular people to save for their future in a very affordable manner. Technology and a persistent effort to improve these products will help regular people keep more of the money they invest. As an investor, you can’t control what happens to the markets or how all of the changes in the world will affect your earnings. But you now have the ability to cut out the financial services industry and cut your costs to the bone.