Reviewing My IRA Options |
11 Comments |
The other day, a reader, Matt, sent me an e-mail in response to my Zecco IRA Rollover. He asked (I’m paraphrasing):
I have a question about the Zecco IRA account. You figured a 0.036% expense ratio and I understand how you calculated it - $30 annual fee/$80k balance. If I had an account of ETF’s, wouldn’t I have to pay $30 per year plus any sort of expenses for the fund itself? Or does the $30 per year replace the fees for the ETF?
It was a great question and I realized that it was one that I clearly overlooked. The answer is simply “yes.” The companies that make the ETFs available have to eat and pay rent too. There’s no way out of ETF expenses. The bright side is that they are typically minimal - the smallest in the industry. That’s the big advantage of going with indexes. Some ETFs have an expense ratio of around .07% - see Vanguard Total Market Index (ticker: VTI). Considering that I’m probably paying close 0.75% or more in some actively managed mutual funds in my 401K now, I’d be pretty happy to push that down to .10-.11% (.07 for the ETF and .036 to Zecco). A half a percent (or in this case slightly more) in 30 years is very significant on an $80,000 investment.
Before settling on Zecco for my rollover IRA, I considered two other options:
- I could go with a brokerage like Ameritrade (where I have my Roth IRA). I pay $10 commission per trade there to buy ETFs. Typically, I make one trade a year (a buy with my yearly contribution). It’s technically a cheaper if I want to continue to do that - just $10 a year to buy and then selling expenses in the future. However, that commission prevents me from rebalancing or contributing a little each month.
- I could go with Vanguard or Fidelity and buy low-expense mutual funds. This option would limit my investing options significantly. For instance I couldn’t find a way to invest in gold or oil with Vanguard’s options.
In the end, this may be nitpicking. All the options keep expenses much lower than the national average. This little bit of nitpicking could translate to thousands of dollars in the future, so it’s worth trying to get it right. I feel that Zecco currently gives me the most flexibility at the lowest cost.
This post deals with: ... and focuses on:Retirement
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March 14th, 2008 at 2:40 pm
Why do I get a weird feeling about Zecco? Because I read this?
http://rumennik.wordpress.com/2007/01/17/stay-away-fr
om-zeccocom/#comment-2029
15 Trader Guy on October 10, 2007 said:
I too had to send in paperwork. Has anyone NOT had
to? I don’t understand why no other online account has
ever had a problem verifying my identity, but Zecco has,
multiple times. Sounds like the French commenter
above had no problems. Beat that! Supplying my info
online was not good enough so they mailed me the
paperwork AND asked me to send in a copy of my
driver’s license. Did that. Trying to hook it up to my 10
year old bank account, which is clearly mine and clearly
based on a verified identity and that’s not good enough
either.
They then ask me to send them a copy of my social
security card. Whaaa? Nobody has ever asked to see
that thing. It’s been in a box so long I’m not even sure
where I put it. That sounds really really odd and makes
me uncomfortable for some reason. I’m going to do it
but I’ve been on the fence about it. Wonder how many
legit people that scares off? Plus you’d think that it’d be
pretty easy to just scan and photoshop yourself a fake
SS card these days if you really wanted to commit fraud,
so it would seem that a scratchy faxed copy of a card
wouldn’t be much more verification than just giving the
number.
If they have such problems with customer service
capacity, maybe it’s because they make so much more
work for themselves and their customers than other
vendors. They’ve got to be drowning in scattered paper.
I guess free trades means you should logically expect
put up with inconveniences you wouldn’t get with other
vendors, but these barriers to entry seem like a
lose-lose situation. I know they want to prevent fraud and
keep security tight, but jeez! I wanted to get in before
the Fed rate cut and foolishly thought I could do it in a
week or so, but it’s been weeks and weeks of baloney
now, opportunity long gone. Sharebuilder was a breeze
to set up, on the other hand. As an infrequent trader I’m
tempted to just stay there and eat the fees and deal with
the weekly purchasing limitation.
16 The IT Guy on October 16, 2007 said:
I’m having the exact same issue with these guys. I don’t
think I’ll ever get my money back.