The word is “zero.”

Zero commissions. Zero fees. A feeling of having zero chance of getting a good yield without taking excessive risk.

As most, if not all, of you know by now, the major discount brokerage firms have eliminated commissions on trades of stocks, exchange-traded funds (ETFs) and options. Interactive Brokers was the first to do so—without much notice—in late September. A week later, Charles Schwab made headlines by announcing it would do the same. TD Ameritrade and E-Trade quickly followed suit. Fidelity did the same about two weeks later.

This is a win for individual investors. It is a big win for individual investors with smaller account balances and for those who make paycheck-related contributions to their IRAs. A person making semi-monthly contributions of, say, $250 (equivalent to the maximum annual contribution of $6,000 for those not eligible for the additional $1,000 catch-up contribution) will now have a much wider array of ETFs to choose from. They can also now dollar cost average into individual stocks. For investors with far larger amounts to invest, the savings will be minor but will still accumulate over time.

Robinhood, an app targeted toward millennials, had been offering zero-dollar commissions prior to these announcements. Speaking personally, I see no reason to go with an emergent, app-based company when you can use an established brokerage firm with identifiable sources of other income.

The actual cost of trading won’t be zero, however. Sells made in a taxable account will be subject to capital gains taxes if a profit is made. A small processing fee levied by the exchanges will continue to be charged. You will also continue to incur differences between the bid (the price buyers are willing to pay) and the spread (the price sellers are demanding). If a stock has lower levels of volume, you could end up moving the price with your order, which would be another cost. Then there are the behavioral costs stemming from bad decisions.

Prior to the announcement of zero commissions, we had seen zero-fee funds. I personally use Fidelity’s zero-fee funds for my “splurge” account. It works well for the $25 per paycheck that I contribute to it. There are also at least two ETFs temporarily offering zero fees, though their tactics seem to be more oriented toward attempting to stand out in a crowded field than anything else.

Then there are current yields. The interest rates offered by some of the major banks are essentially zero. Citi Accelerate Savings pays 0.04%. Chase Savings pays 0.01%. Bank of America pays 0.03%. Those with large enough balances can get higher rates, but those rates are still low.

If you are comfortable banking online, you can do much better. Through an affinity program, Discover was offering AAII members 1.95% interest on savings accounts with no minimum balance as of October 15, 2019. Check https://aaii.discoverbank.com for the current rates.

The current yield environment is the subject of two articles in this month’s issue. First, AAII contributing editor Brian Haughey discusses what the inverted yield curve and negative interest rates mean for you starting here. Past inverted yield curves have preceded recessions (as was discussed in our May 2019 issue, “Bond Yields’ Role as a Recession Warning Signal”). Negative interest rates haven’t occurred here in the U.S., but overseas, German bunds were still trading with negative yields as of press time. Either way, it would be prudent to assume a lower return from the bond portion of your portfolio for the time being unless you are holding individual bonds until maturity.

For this month’s second article, we asked AAII members about the low interest rate environment. Our “Big Question” focuses on what changes they’ve made in response. We received many insightful answers, along with some useful guidance. Thanks to everyone who participated as well as those who answered our follow-up questions.

Though many of you would like higher rates, we don’t get to choose the environment we invest in. We only get to control how we react. So, no matter how many times you hear the word zero, realize the best way to avoid seeing your account dwindle down to that amount is to adhere to a disciplined, long-term strategy.

Wishing you prosperity,

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