Zero Fee Trades Likely Means Lower Fee ETFs - Part 1

The investment world was flipped upside-down recently when Charles Schwab eliminated trading commissions on stocks, ETFs, and options last month. The move prompted TD Ameritrade, E*TRADE, and other players in the industry to follow suit quickly or risk losing clients. The move is not the first time we have seen trading commissions reduced, but never before have retail investors been able to trade literally for free.

Most people would claim that the late Jack Bogle started this ‘war on fee’s’ decades ago when he introduced the low-cost index fund at Vanguard. The first low-cost mutual funds offered investors an inexpensive, at the time, option for investors. The low fee option Vanguard introduced proved to be a good move as Vanguard grew its asset base into what is now more than $5.5 trillion. Over the years, other firms began to fight back by cutting their fees, but the war had already started, and investors began to see the value in low-cost options.

Jack Bogle himself would often talk about how fees cost investors hundreds of thousands of dollars over their investing lifetime. The simple idea of paying lower fees equates to higher account balances over time makes perfect sense, especially to anyone who understands the power of compounding returns.

Zero fees on trading commissions will leave millions of dollars in investors' hands. It has been estimated that Charles Schwab alone will lose out on somewhere between $90 and $100 million in quarterly revenue now that they cut their trading fee to zero. That is just $100 million for one firm and one quarter. Based on those figures only of Schwab, we could easily see somewhere close to $1 billion is left in the hands of investors over the course of a year.

Now that we have hit zero fees on trading commissions and investors continue to learn how low-cost investing helps their overall returns, it's likely we will see more fee-cutting throughout the investing industry. The high fee’s on mutual funds have already begun pushing investors to ETFs. And the ETF industry has already started fighting the battle to cut costs. Continue reading "Zero Fee Trades Likely Means Lower Fee ETFs - Part 1"

Exchange Traded Funds Are Becoming More Popular Because of This One Undeniable Benefit

Matt Thalman - INO.com Contributor - ETFs


The vast majority of American investors do so through mutual funds, but that trend seems to be changing for the better because investing for the masses is getting a lot cheaper.

Data from 2016 indicated that over half of U.S. households invested in mutual funds and the industries total assets under management were $16.34 trillion at the end of the year. Over the past few years net cash inflows to mutual funds have been shrinking and even turned negative in 2015. In 2007 cash inflows to mutual funds hit an all-time high at $879 billion, which makes sense because this was the peak of the market before the crash caused by the housing crisis. In 2009, 2010, and 2011 cash inflows were negative, -$146 billion, -$282 billion and -$96 billion respectively.

In 2012 cash in-flows returned positive and hit $200 billion, but the industry has seen declining in-flow ever since; $177 billion in 2013, $104 billion in 2014, a negative $101 billion in 2015 and even worse a negative $229 billion in 2016.

It was easy to see and understand why mutual funds experienced cash flow decline in 2008, 2009, and 2010 as the market was falling and investors were scared. But the fact that less money is moving into mutual funds while the stock market in general has increased the past few year's means there is likely a larger force at play. Continue reading "Exchange Traded Funds Are Becoming More Popular Because of This One Undeniable Benefit"