Brokerage Fees Hurt Your Compound Interest Potential

Do you like being charged brokerage fees? I didn't think so. Are you charged an annual fee just to use your brokerage company? I believe it! If so, kick them to the curb and sign up for one who does not charge an annual fee. Brokerage companies that charge annual or quarterly fees can absolutely ruin your Roth IRA Stock portfolio potential gains and dividend payment returns.

Well, you are most likely charged a brokerage fee each and every time that you purchase stock, right? These fees may range from $7.95 to $19.95 in some instances, depending on which brokerage firm that you use. These fees hurt your ability to grow your dividend stock portfolio into a money making income machine. You not only take a financial hit when you are charged a brokerage fee but you also lose money on the interest that could be compounded on that $7.95 to $19.95. Here is a quick analysis to show you what I'm talking about:

Let's say you purchase stock each week, once a week. That's $7.95 per week. 

$7.95 x 52 weeks in a year = $413.40 x 30 years (i.e. 2012 to 2032, typical working career) = $12,402.00 in fees!

If you had invested those funds (aka fees) into Johnson & Johnson (stock ticker JNJ), with an average of 3.48% dividend yield you would have all of those fees, $12,402.00, in your Roth IRA stock portfolio and also all of those dividends paid based off of that $12,402.00 reinvested!**


**Current principal of $7.95, annual addition $413.40, years to grow: 30, interest rate 3.48%, compound interest: 1 time annually at the start of the compounding period).
Additionally, these figures do not even include whether JNJ increases in value or not. Just think of all the money left on the table in fees, fees, fees!

That being said, here are four ways that I try to avoid brokerage fees, or greatly reduce my exposure to those pesky FEES!

1) Sharebuilder by ING. I am not being paid to talk about this company. They are just fantastic. They offer a $4.00 weekly, bi-weekly, monthly, yearly Automatic investment plan. Each investment occurs every Tuesday and hey $4.00 is better than $7.95!

Click HERE to learn more. 

2) DRIP - Dividend Reinvestment - A DRIP is an excellent way to increase the value of your investment. Most DRIPs allow you to buy shares commission free and at a significant discount to the current share price. Great video from YouTube below.

3) Charles Schwab ETFs -  I am not being paid to talk about this company. They are just fantastic too! Schwab offers $0.00 online trade commissions through their Schwab Accounts.

Click HERE to learn more and hear about ETFs from the man himself below!

4) Direct Stock Purchase Plans - Click on the links below and read up on how to buy stock FEE FREE! You probably won't hear about these plans from your stock broker! Enjoy!

American Stock Transfer and Trust Company

Computershare Direct Stock Purchase Plan

Computershare No Purchase Fees

How The Stock Market Works

Here are two of my favorite YouTube videos. The stock market truly is the best investment for your retirement needs. Never underestimate the power of dividends! Happy New Year! I wish you much success and profitability in 2012!

PNC Financial Services - PNC

PNC Financial Services Group, Inc., stock ticker PNC, is a diversified financial services company in the United States. PNC is engaged in retail banking, corporate and institutional banking, asset management, and residential mortgage banking, providing many of its products and services nationally. Their primary geographic markets included Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Indiana, Kentucky, Florida, Virginia, Maryland, Missouri, Delaware, Washington, D.C., and Wisconsin. PNC also provides certain products and services internationally.

Most recently, PNC was given a buy rating by Morgan Stanley (MS). MS believes that due to PNC's ability to offset lower yields and if they are able to close the RBS Bank USA deal earnings per share can rise. PNC has a much lower risk loan portfolio than their competitors. Additionally, PNC pays a 35 cent quarterly dividend, which is a healthy 2.43% dividend yield. Back in 2005 their share price the exact value as it is today, however they paid a 50 cent dividend and before the Great Recession PNC was paying a 66 cent dividend. Now if that doesn't tell you that there will be more dividend increases over the next few years then I'm not sure what else to tell you. PNC's dividend increases make them a great value play.

PNC makes good solid positions and have gone after the Generation X market in a big way, rather than just going after them for credit cards. Their relationship and products with colleges students, for example, the Virtual Wallet, will bring them more customers. PNC is a conservatively managed bank and are expanding in an efficient, smart way. They have a stable deposit base, recent acquisitions were at reasonable prices, and the best part about PNC is that their exposure to troubled loans is considerably less than many banks (ahem Citigroup, ahh-chew Bank of America).

What I have noticed about PNC is that they are able to hold onto their customers. Their customer retention levels are much higher than their competitors. PNC is, like Destiny's Child says, a "survivor". They will not give up, they will work harder for their customers. When PNC acquired National City Bank they had a few bad quarters. They suffered due to a weakening of their credit portfolio, due largely to the residual issues from National City's acquired portfolio. As these bad loans were gradually erased from their books, they found, and continue to find, themselves with their traditionally strong franchise, yet now with an expanded footprint obtained on the cheap per the National City Bank acquisition.

In closing, please do your due diligence on this one. Banks are a tad risky right now, but for the long term you need to have at least one bank held within your Roth IRA stock portfolio. Similar to Wells Fargo, PNC was once a regional bank, but they are ready to play with the big boys who have fallen (C, BAC) and are ready to fly high! Please visit their website, here, and watch the videos below to learn more about this solid bank. Thank you for your time.

Hartford Financial Services - HIG

On May 11th, 2007 the Hartford Financial Services Group, Inc., stock ticker HIG, was worth $105.34 and paying a 50 cent dividend. Today, December 28th, 2011 HIG sells for $16.07. Yes, that is a huge change in stock price, however HIG still pays a 10 cent quarterly dividend, which currently is a 2.49% dividend yield. 

Let's backtrack for a second. HIG, together with its subsidiaries, The Hartford is an insurance and financial services company. They maintain a retail mutual fund operation, whereby HIG, through wholly-owned subsidiaries, provides investment management and administrative services to The Hartford Mutual Funds, Inc. and The Hartford Mutual Funds II, Inc., consisting of 52 mutual funds, as of December 31, 2010. 

HIG is at a historical low, is a great value play, and while you wait for the share price to rebound you'll be paid. I am not some insider who has secret information about this company nor a psychic who can see the future, I just believe that HIG is where it's at for maximum gains. They are planning a buy back of their own stock in 2012 and their dividend will only keep growing at this point. Their P/E is among the lowest in their industry and should recover nicely as they return to respectable profitability in 2012. Essentially HIG has broke even during the past two quarter, however they are trading at less than half of their tangible book value!

If you want to go bargain hunting to feed your Roth IRA then look no further than the Hartford. Not only are they a long time insurance company, but they have several lines that cater to our aging population. As the baby boomers continue to hit their retirement years expect sales to pick up drastically. The last time you could pick up HIG at these levels was the early mid 1990's. HIG may not be worth what they were worth in 2007, but they are worth more now than they were in 1994. There is nothing wrong with buying HIG and holding on for the long term. They are a company with over two hundred years of business experience and have been through worse through their company's history and repeatedly come out of the storm just fine in the end. Think of HIG as an insurance policy for your Roth IRA. HIG is only going to increase in value! Believe it.

Please visit Hartford's website, here, and their Investor Relations website, here. Feel free to watch the videos below to learn more about this excellent company and consistent dividend payer. Have a great remainder of the week! I wish you much success with your Roth IRA stock purchases.