If your investment strategy is based on transactional costs, you’re probably not doing it right. Yes, fees of all types matter, but investment professionals caution they shouldn’t guide investment decisions.
In the week ahead, JP Morgan Chase reenters the discount stock-broker business. Thirteen years ago, the financial giant sold its online low-cost brokerage business, BrownCo, to E*TRADE. When it got out of the cheap-stock-trading business, it was charging $5 per trade. It returns to the business with its You Invest service offering 100 free trades in the first year for customers.
The race to $0 to buy and sell stocks and exchange traded funds has been here for awhile. JP Morgan’s entry represents a massive player considering 60 million Americans bank with it. That gives JP Morgan an enormous customer base of potential stock investors, many of whom aren’t.
The share prices of other discount brokerages like E*TRADE, TD Ameritrade, Charles Schwab and Interactive Brokers fell several percent age points when JP Morgan made the announcement. The new competition cost those companies more than $5 billion of market value in a single day.
Free stock trades eliminates a barrier for some to enter the stock market. But it doesn’t add up to the appetite to be an investor.
Only about half of American households even have money in the stock market. Before the Great Recession, it was close to two out of three, according to the Gallup Poll. New highs in the major stock indices hasn’t draw in new investors. Booming corporate profits haven’t attracted more Americans to invest. And the wealth in the stock market has gotten more concentrated. More than 90 percent of stock is owned by the top 20 percent of households according to data from New York University.
Time will tell if JP Morgan’s $0 stock trading business will attract new dollars into the market or simply have current investors flocking to the free service.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM; @HudsonsView