IFB125: Using the Bid-Ask Spread to Buy Zero Commission Stocks (over ETFs)

10.31.2019 - By The Investing for Beginners Podcast - Your Path to Financial Freedom

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Dave:                                    00:35                     All
right folks, we’ll welcome to the Investing for Beginners podcast episode 125
tonight. Andrew and I are going to continue our ongoing discussion about the no
commission news that hit the stock market last week, and we had some other
additional thoughts that we wanted to share with you about a couple of
different topics. So the first one we’re going to talk about is something that
I broached with Andrew earlier this week, and we’ve talked a little bit about
it off air and we thought this would be something that might be of interest to
you guys and see if it was something that might help you with your investing.
So the thought that I had was, how is this going to affect ETFs? And the reason
why I thought that was because before when you would go on ally, for example,
and buy an ETF, let’s say a VOO, which is an ETF that tracks the top of P E an
S and P 500 has got 516 stocks, I believe.

Dave:                                    01:38                     So
it tracks the majority of the S and P plus a few extras. So what’s to stop you
from doing something a little bit different? So in the past, when you buy this
particular ETF on ally, you would pay four 95 for your trade like everybody did
for any other stock. And then, during the year, the ETF would also charge you a
fee to manage and operate the ETF for you. Now in this particular case, it’s a
0.3, so it’s quite small, but it’s; still, it’s money that is taken from your
returns at the end of the year. And so my thought was, is now that you don’t
have to pay that four 95, why would you pay for the commission on not the
commission, but why would you pay the management fee on the ETF? And my
thinking was is that you look at, when you look at an ETF, you can see a
breakdown of what it is that they are holding in that ETF.

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