Just announced: Schwab, Fidelity and Ameritrade are offering all individual investors infinite commission-free trades! Now that I have your attention, let me tell you that in actual fact they aren’t doing any such thing, but as an investor, you should adopt that “free” mindset. The reality of today’s electronic market is that the average online brokerage fee is just $5.95. Interactive Brokers, Inc. charges just $1 per stock trade, while the big three mentioned above all charge under $10. Some brokerages, such as Vanguard, even offer 25 free trades every year if your assets exceed certain thresholds.
The point I wish to hammer home is that the act of selling your equity position is a particularly episodic exercise because so many complicated emotions, events and indicators can influence your actions. Yes, tax consequences matter and allocation decisions are also important, but what is most required at this stage is decisiveness and a firm response. Anything and everything that might stand in the way of that – regardless of the size of the speed bump – must be purged, removed and completely banished from your trading psyche. Worrying about commission costs or factoring them into the equations of your investing will just hurt you. Unless, of course, you are a very high frequency day trader – then you might want to shop around a bit.
If you can emotionally embrace the mantra that trading is free, you are more likely to do what the market is telling you to do and thereby do exactly what you need to do. Being even slightly anxious about a trading commission might cause you to pause just enough for the market to move against you far more than the cost of the commission. To paraphrase Babe Ruth in a tongue-in-cheek manner, “Never allow the fear of paying a commission keep you for playing the game.”
Trade well; trade with discipline!
-- Gatis Roze