Saturday, December 27, 2014

How to pay zero commission investing in stocks

Investing involves costs-- time and effort spent researching securities and managing your portfolio, SEC fees on stock sales, management fees if you invest in funds, capital gains tax, tax on dividends, bid-ask spread, slippage, etc.-- all of which reduces investment returns. To add commission charges on top of all these costs is to further diminish your returns unnecessarily, when there are so many ways today to invest in stocks without paying a penny in commissions. In this post, I will highlight two best routes to invest in stocks sans commissions:

1. Buy stocks directly without a broker
Dozens of companies offer free direct share purchase plans (DSPPs) without any fees to buy (although all charge fees to sell). Many of these no fee DSPPs are offered by great companies that make good buy-and-hold investments.,, and have some of the biggest offerings of DSPPs. You can also search online using bing or google for no fee DSPPs, as new ones added and old ones removed from time to time. Here are 20 of my favorite no fee DSPPs:

Becton Dickinson,
Bryn Mawr Bank Corp,
CR Bard,
Emerson Electric,
General Mills,
Healthcare REIT,
McGraw Hill,
Norfolk Southern,
Piedmont Natural Gas Co,
Pinnacle West,
Public Service Enterprise Corp,
Sonoco Products,
York Water.

I am providing this list to show that it is possible to buy a diversified portfolio using no fee DSPPs alone, and this is not a recommendation to buy. Please do your own due diligence.

You can enroll by making a one-time investment, or a monthly investment amount, typically $50 or $100 a month, but can be as low as $1 a month for Pinnacle West. Through dollar cost averaging, you can autopilot your monthly savings into great companies, buying more stock when the prices decline, and less when they advance.

An added bonus is that some no fee DSPPs even offer you a discount, such as Bryn Mawr Bank Corp and York Water currently offering 5% discount on reinvested dividend. Like company match in a 401(k), that is the rare free lunch on Wall Street you don't want to miss out.

2. Use a commission free broker
Although most brokerage firms charge commissions for buying and selling stocks, at least two do not as I write. One is a major brokerage firm: Merrill Lynch (, now part of Bank of America. The other is a small, new player: Loyal3.

Merrill Edge gives you 100 free trades as part of their Preferred Rewards Program so long as you maintain at least $100,000 in combined account balance across all Merrill Lynch and Bank of America accounts. You can get 30 free trades if you maintain at least $50,000 account balance. If you are an investor, as opposed to a high frequency trader, even 30 trades a month should be more than sufficient.

Loyal3 charges no fees at all with no minimum balance requirements. However, you can only choose among a list of 64 stocks to invest in, as I write. The number of offerings is expected to expand as the company become established and more companies get on board. Many of these are solid consumer goods stocks that make great long term holds. Unlike Merrill Edge and most traditional brokers, loyal3 allows you to buy fractional shares and invest a fixed dollar amount monthly, taking advantage of dollar cost averaging just as in a DSPP.

If you rather buy funds instead of individual stocks, plenty of brokers, such as TD Ameritrade, Fidelity, Charles Schwab, offer a list of commission exchange traded funds (ETFs). ETFs are the best funds to invest in, as they have lower expenses, are more tax efficient, and are more liquid than mutual funds. I prefer investing in stocks directly, because while seemingly small, annual expenses of funds do add up over time.

A word of caution: SIPC insurance covers only up to $500,000 per brokerage account. I would recommend staying under this limit with any broker, especially with small, new players like loyal3.

What do you think? Do you pay commissions to invest in stocks? If so, would you switch to these methods? Know any better ways to buy stocks commission free? Thanks for reading!

Tuesday, December 9, 2014

Saving money on the phone bill

My phone expenses will go up in December, but it will then come way down. The reason is that I had been paying $5 per month for an 80-minute calling plan, plus $34.95 per month for unlimited plan with puretalk USA, for a household of two. Then I found Republic Wireless which offers unlimited plan at $10 plus tax per month and decided to switch on December 1. I paid $116.63 for a Republic Wireless Moto E phone (shipping and tax included), and $12.92 for first month's bill (tax included), for a total of $129.55. Add that to the $5 per month plan, and my December phone expense will come in at $134.55.

However, looking forward, I will only pay $17.92 per month for cell phone expense. That is a saving of $22.03, or 55%, from the prior $39.95. The phone will pay for itself in under six months. Assuming the phone lasts at least 2 years, my phone expense over two years will be $546.71, which is a saving of $412.09, or 43%, from $958.80 under my old $39.95 per month plan for two lines.

That surely puts a smile on my face. Just today, I came across an article saying the average monthly cell phone bill has soared in recent years to well over $100. Spending $100 per month means $1200 annually, which requires $30,000 capital to produce at 4% interest rate. Is your cell phone really worth $30,000 to you?

Monday, December 8, 2014

My 2014 Monthly Budgets from January to November

Since 2014, I have been tracking my monthly income and expenses. You can see a breakdown of every penny I earn and spend. For perspective, this budget is for a household of two in a small US city. By documenting my journey, I aim to demonstrate the feasibility of saving a significant portion of your income and provide some ideas and inspirations for your own budget.

Below are my monthly budget from January to November, 2014.
Jan 2014Feb 2014Mar 2014Apr 2014May 2014Jun 2014Jul 2014Aug 2014Sep 2014Oct 2014Nov 2014YTD
Other Income$0.00$0.00$0.00$0.00$0.00$0.00$268.29$565.31$70.34-$347.96$262.35$818.33
Amazon sale$8.44$29.44$13.51$12.83$90.60$39.80$47.57$6.75$23.27$272.21
Ebay sale$26.15$10.75$10.77$9.79$28.90$88.62$29.46$91.76$22.34$318.54
Total Income$9,130.09$9,308.82$10,330.33$9,995.99$9,770.53$10,167.03$25,424.49$8,855.88$9,302.59$28,460.98$9,026.83$139,773.56
Federal Tax$0.00$0.00$312.62$312.62$722.14$312.62$4,062.62$722.14$722.14$5,722.14$722.14$13,611.18
Federal Tax Pmt/(Refund)$1,134.78$1,134.78
Student loan repayment$160.57$160.57$160.57$160.57$160.57$160.57$160.57$160.57$159.94$159.89$157.49$1,761.88
Car Insurance$335.18$140.47$120.38$596.03
Car Reg/Tax$311.97$311.97
Cell phone$65.11$65.27$65.20$64.31$120.90$120.90$44.95$44.95$39.95$39.95$671.49
Amazon sale costs$7.59$3.11$32.13$28.03$13.45$13.93$8.07$106.31
Ebay fee$16.64$2.29$2.10$10.71$4.38$1.01$1.56$4.32$43.01
Everything else$13.66$1.27$325.00$68.90$1.07$409.90
Total Expense$2,020.83$1,545.37$3,047.38$1,893.55$2,663.45$1,865.34$5,934.58$2,153.61$2,077.41$6,977.46$2,033.36$32,212.34
Ex-Tax Total Expense$1,606.56$1,131.10$1,164.92$1,145.87$1,506.25$1,117.66$1,436.90$996.41$920.21$820.26$876.16$12,722.30
Before Tax Saving Rate77.87%83.40%70.50%81.06%72.74%81.65%76.66%75.68%77.67%75.48%77.47%76.95%
After Tax Saving Rate81.57%87.28%86.21%87.61%82.51%88.13%93.13%87.06%88.70%96.32%88.87%89.42%

My after tax saving rate ranged from a low of 82.51% (May) to a high of 96.32% (October). The low was due to a one-time non-recurring expense of $325. The high was thanks to a $20,000 bonus paid that month.

Wages are what pre-tax income from my day job, including base pay and bonuses. Dividends are paid from my stock investments. From January to November this year, I have received $8453 in dividends, which covered 66% of my after tax expense during that period, so I am making progress, 66% on my journey to financial freedom!

From time to time, I sell stuff I don't need on ebay and amazon, hence the category for these under both income and expense. Other income includes every other penny that come my way not fitting in the aforesaid categories.

Rent decreased from $800 to $450 per month as I relocated from an expensive city to a small city in June. This did not help my finances though, as I took over $1000 per month cut in my housing allowance, reflected in reduced wages above. Grocery was more expensive in the small city compared to before, probably due to less competition and higher transportation costs. Still, spending around $102 per month averaged over 11 months on food for two is not bad. I keep my food expenses down by not dining out, not buying meat, and buying cheap produce and grains on sale and in bulk. "Everything else" spending category is for nonrecurring items that I do not have a regular budget for.

From January to November, I managed to save 76.95% of my pre-tax income, and 89.42% of my after-tax income, which is very good. My goal is to save 90% of my after-tax income, which I have a chance of meeting for the full year of 2014, depending on how my December income statement looks.

Stay tuned for my December budget and end of year 2014 summary next month.

How's your budget? Did you save as much as you wanted to? On track to meet your savings goals for the year? 
Thanks for reading.

Welcome to Journey to Total Freedom!

Everyone has a story to tell. In this blog, I will document my journey to attaining total freedom. I will post my monthly budgets, investment portfolio, investment strategies, thoughts on frugal living, healthy living, and much more! Stay tuned.