When investing in any security, investors can maximize returns by cutting down on costs. With exchange traded funds, some may find commission-free options in their brokerage accounts, diminishing fees that can slowly eat away at an investment portfolio over time.
Trading costs add up. Investors who want to dollar-cost average or regularly invest a certain percentage of their paycheck will find that the trading fees will chip away from their total investments, writes Sheyna Steiner for Bankrate.
“Without commission, you can buy as few as one share at a time whenever you get some spare change in your brokerage account,” Bankrate’s chief financial analyst Greg McBride, CFA, said in the article.
Additionally, investors can reinvest diviends for free in most cases.
“Free dividend reinvestment facilitates the compounding that can turbocharge long-term returns,” McBride added.
Among large brokers, investors can trade a number of ETFs for free on Fidelity, Vanguard, E-Trade, Firsttrade, Ameritrade and Charles Schwab platforms, and all the brokers offer free dividend reinvestment as well. [Six Popular Commission-Free ETF Trading Platforms]
Fidelity offers 76 commission-free ETFs provided by two fund sponsors. However, investors are required to hold the ETFs for at least 30 days to avoid a short-term trading fee. [BlackRock, Fidelity Partnership Paying Off in Spades]
Vanguard offers 67 ETF options to trade for free with no minimum holding period.
E-Trade has 108 ETFs options taken from three fund providers. The broker also requires a 30-day minimum holding period.
First Trust includes 10 commission-free ETFs from three providers. The broker requires a 30-day holding period, with a 10 share minimum per trade.
TD Ameritrade shows 101 options from nine fund providers and also requires a 30-day holding period.
Lastly, Charles Schwab offers 119 ETFs from six fund sponsors, and it does not require a minimum holding period. [Schwab’s OneSource Continues Impressive Asset Gathering]
However, there are some caveats to consider. The commission-free list is not set in stone and can change. For example, Fidelity gave investors a grace period to sell some ETFs commission-free before they were taken off the list, but traders would be stuck with a capital gains bill.
Moreover, the commission-free ETF list varies from broker to broker. Investors should not invest in something just because it is free to trade. Instead, people should consider all options available and choose the investment to fit their needs.
“Getting an incentive to use one fund and a disincentive to use another is problematic, since investors may not be choosing the right fund in the first place,” Gary Gordon, a CFP professional and president of Pacific Park Financial, said in the article.
For more information on ETFs, visit our ETF 101 category.