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SDS (Seductive Dividend Stocks)
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Sorry I hide my true identity but I'm a physicist/engineer, native contrarian and idea generator. I am an eclectic dividend investor with motto "In God We Trust, All Others Pay Cash" applied to companies I invest in. I like to read /and read a lot - did you look on my SA photo 8-)? /... More
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  • Fees And Holding Period. 1 comment
    Jan 17, 2013 6:34 PM

    1/17/2013

    Usually retail investor pays significant brokerage fees to trade, while some ETF charges quite modest fees. I compared both fees (see the table below) with simple assumptions - ETF can be traded for free (valid for some funds in some brokerages), annual increase of stock or ETF price is 10%, no taxes on capital gains and dividends, initial ETF fees is 0.05% from investment value while flat brokerage fees are equal 0.2% for initial purchase. Last two numbers are real, for example, Vanguard's fees is 0.05% for VOO and Scottrade charges flat 7$ for a trade (I assume $3,500 investment, so it is 0.2%. If you're lucky and got ten-bagger you pay 0.02% when you sell it).

    YearETF Fees /AnnualETF Fees /CumulativeCapital GainsBroker Fees/1wayBroker Fees/Round trip
    10.05%0.05%1.0000.20%0.40%
    20.055%0.11%1.1000.18%0.38%
    30.061%0.17%1.2100.17%0.37%
    40.067%0.23%1.3310.15%0.35%
    50.073%0.31%1.4640.14%0.34%
    60.081%0.39%1.6110.12%0.32%
    70.089%0.47%1.7720.11%0.31%
    80.097%0.57%1.9490.10%0.30%
    90.107%0.68%2.1440.09%0.29%
    100.118%0.80%2.3580.08%0.28%
    110.130%0.93%2.5940.08%0.28%
    120.143%1.07%2.8530.07%0.27%
    130.157%1.23%3.1380.06%0.26%
    140.173%1.40%3.4520.06%0.26%
    150.190%1.59%3.7970.05%0.25%
    160.209%1.80%4.1770.05%0.25%
    170.230%2.03%4.5950.04%0.24%
    180.253%2.28%5.0540.04%0.24%
    190.278%2.56%5.5600.04%0.24%
    200.306%2.86%6.1160.03%0.23%

    As anybody can see ETF fees are smaller than brokerage fees during first 5 years and after it brokerage fees for round trip are smaller when cumulative ETF fees. Therefore a long-term retail investor can "beat" even cheap ETF if (s)he hold stock long enough.

    For more rigorous but a bit outdated study see

    [1] Direct vs. Indirect Diversification
    Keith V. Smith, John C. Schreiner
    Financial Analysts Journal, Vol. 26, No. 5 (Sep. - Oct., 1970), pp. 33-38

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  • healthythoughts
    , contributor
    Comments (2850) | Send Message
     
    Yes, I see where it could make a difference for some. For me I purchase & hold, reinvesting dividends. There are no fees for reinvesting. I hold SDY VIG & VYM in 2 IRAS (1 Trad/1 Roth) so no capital gain tax

     

    Thanks for the info
    18 Dec 2013, 05:03 PM Reply Like
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