I’ve been meaning to write this for months, ever since I saw those ads for Prudential Brokerage featuring $24.95 trades. Cheap!
OK, so it’s more than the $8 Ameritrade might charge or $19.95 eTrade might charge, but after a point, unless you trade a lot — or in tiny increments — who cares? And if you trade a lot, I would argue you are making a mistake far more fundamental than overpaying for your trades. So $24.95 is pretty good.
Sure beats the $200 and $500 commissions we used to have to pay!
Plus, it’s Prudential. The rock.
But of course it’s not the $24.95 they draw your eye to that makes any difference, it’s the 1.5% a year they shave off your entire portfolio as an advisory fee, if your account is small, or the 1% or so they take if your account is large. Are you kidding me?
As I have written over on the Personal Fund web site, over a lifetime, 1% makes a huge difference — let alone 1.5%. If you put away $2,000 a year for 50 years at 8%, you’d have nearly $1.25 million at the end. Not bad. Doing just 1% better, though, you’d come out more than half a million dollars ahead. And that’s with 1%, not 1.5%, and before any brokerage commissions.
Or look at it this way. If your savings bank took 1% from the 5% it pays you, that would be a 20% slice!
If studies showed that Prudential customers tended to outperform most people by a wide margin, because Prudential knew which stocks would go up the most and which the least, then 1% would be cheap. But what possible reason is there to think this? Is it possible that some huge investment firms do consistently better than average in picking stocks? If so, other big brokerage firms must do worse, no? Everyone can’t be above average — let alone by enough to make up for fees and brokerage commissions and the taxes you pay on gains from trading stocks. Is the idea that Prudential customers tend to do 2% better than average and Merrill’s customer’s do 2% worse? Or don’t they all, on average, over time, do about average — minus the fees.
That’s why index funds, which have tiny management fees, almost no transaction costs, and gentle tax consequences, make so much more sense for most people than, say, a brokerage account at Prudential — or anyone else who charges 1% or 1-1/2%.
I know. You’re getting more than stock-picking advice from Prudential, you’re getting someone to talk to, and that’s nice. But what was that famous movie line? “A friend? You want a friend? Get a dog.” (Was it Jack Nicholson? Sounds like Jack Nicholson.) Otherwise, read a little paperback book and, for example, the personal finance pages of the Wall Street Journal.
Quote of the Day
If you can't live without me, why aren't you dead?~Robert Pollard, Street-Smart Economics (we say we need things that we merely only want)
Request email delivery
- Sep 20:
The Easy, Cheap Way Is The Best Way
- Sep 19:
Statues Again: Benedict Arnold, Anyone?
- Sep 17:
“It’s War” — And We’re Losing
- Sep 15:
No, Chuck Todd Is Not A Corporate Shill
- Sep 14:
Tom Brady’s Brain
- Sep 13:
The 5 Jobs Robots Will Take First — And Last
- Sep 12:
He Was Just 17
- Sep 11:
Troll Farms and Gay Muslims
- Sep 8:
- Sep 7:
The Really Big Picture
- Sep 20: