Chapter 1
How to Buy and Sell – Picking a Stockbroker
(Note: I originally wrote this book many years ago when Merrill Lynch Blueprint was the only way the small investor could get a break on commissions. I decided to keep the information on Blueprint even though as you'll see later on, there are a lot of online brokers out there with very low commissions. I guess I'm nostalgic.)
There is an easy way for the small investor to play this investing system. The easy way is with the Merrill Lynch Blueprint Program. The Blueprint Program, formerly called the Sharebuilder program, is ideally suited for us, the small investor. Briefly the Blueprint program allows the investor to buy stocks and other investments at low commissions through our branch of Merrill Lynch, their "discount broker."
Merrill Lynch has over 1 million Blueprint customers. The great advantage of Blueprint is that it allows you to buy and sell as little as $100 worth of stock (I now recommend selling at higher amounts than $100 worth and would be happy to recommend the proper amount you should use with AIM to buy and sell based on how much you are investing in each individual investment as my system recommends, at very low commissions.)
Here's how Merrill Lynch describes Blueprint:
It's a convenient and inexpensive way to build your investment portfolio of stocks, mutual funds, and precious metals. More than 1 million people are building shares in their future and preserving the purchasing power of their dollars by participating in the Blueprint Program. Besides helping increase assets, Blueprint offers these benefits:
Small incremental investments in the securities you select allows you to build your portfolio over time as you invest in stocks, mutual funds, and precious metals. You have an opportunity to buy full and fractional shares because you invest by the dollar, not the share amount. And that is exactly what you are going to do when you learn AIM you're going to buy and sell based on the dollar amount of the buy in the sell and not on a specific number of shares. The Blueprint program will buy you shares out to four decimal places. For example your account could show 78.9856 shares. This is a tremendous benefit to the small investor. Investment alternatives allow you to diversify your portfolio among thousands of stocks and closed-end funds (later on you'll see I love closed-end funds for AIM investors who want to play AIM and yet get high monthly or quarterly dividends) listed on the New York, American and over-the-counter markets or NASDAQ.
Reduced brokerage fees on securities provide substantial savings off the regular Merrill Lynch commission charges for stocks. When you purchase stocks through the Blueprint program, you can take advantage of transaction fees up to 55% less than regular Merrill Lynch rates. Below are the Blueprint rates as of April 1988: (compare the "discount commission rates" in 1988 when we didn't have computers and online trading, to what the commissions are today; there is no comparison, commissions have gotten substantially cheaper to the point where AIM is even better system than when Mr. Lichello invented it because back then any commissions were much higher. Now you can safely trade even small amounts at extremely low commission rates.
Transaction amount – Blueprint Commissions:
See how much cheaper current commissions are!! And no limits on dollar amounts of your trades.
$0 to $125 - $12.50
$125 to $200 – 10%
$200.01 to $500 – 5% plus $10
$500.01 to $1,000 – 1.5% plus $27.50
$1,001.01 to $5,000 – 1.2% plus $30.50
$5,000.01 to $7,500 – 1.15% plus $39.50
$7,500.01 and up – Regular rates
(All these rates are very high compared to today’s commission rates of less than $10 a trade)
Blueprint also charges $3.85 as a transaction fee for all trades and now charges $30 a year for account maintenance. There are no charges for Ready Asset, (money market) transactions.
The basic reason that Blueprint is better for us small investors is that all brokers including discount brokers have a minimum commission. The regular Merrill Lynch minimum commission (not Blueprint) in August 1984 when I bought 100 shares of our $4.50 stock was $40. A comparison of several discount brokers from 1984 showed that the minimum commission was around $30 or higher. Also some discount brokers only dealt in round lots (100 shares.)
For a small investor, Blueprint is perfect. If you look at the various charts throughout this book, you'll see that our buys and sells our small most of the time. Blueprint is an easy and inexpensive way to make them.
You always have immediate access to your investments under Blueprint. You may change from one investment to another any time. If you wish to buy or sell, Blueprint is only a toll-free (sorry only in the United States), and Blueprint has another advantage... (Merrill Lynch continues on but I stopped.)
Other discount brokers
Blueprint is a fine inexpensive way to play the system but it's not the only game in town (actually Blueprint doesn't exist anymore!) There are other discount brokers out there. For investors to start with larger sums (for example $10,000 per stock) the savings can be substantial. All the charts in this book use Blueprint commissions; if we had paid less than commissions by using another discount broker, our commissions would have been less and our profits more.
Below are the current low commissions for several brokers – one broker – Options Xpress – specializes in options trading.
Brokers on the Web
Note: the rates you see below were written at some point in the past and I'm not sure if they're still the current rates. I'm sure the rates are pretty similar or even lower than what I put down here. You can always go to their website and check out for yourself what the current rates are. I don't want to be the one to tell you should only go to this broker but I have dealt with TD Ameritrade for years and found them to be an excellent stockbroker that offers many features including free Standard and Poor Reports and other reports that let you do research on various stocks that you're considering buying. They might not be the cheapest one out there but their commission rates are still very low, below $10 a trade.
The computer age comes to investing. Now you can do your buying and selling by computer over the Internet. And now you're not even limited to a computer anymore; you can do your buying and selling from your smart phone, iPad or who knows; soon maybe you're just be able to talk to your wrist and make a buy or sell sometime in the future. Technology is amazing and it is helped us investors be able to find a wealth of information very quickly and very easily that I will talk about throughout this book about just how easy it is to find investing information that when I originally wrote this book didn't even exist.
Many stockbrokers and subsidiaries of major brokers offer trading via computer. Most brokers are on the web which means everybody can access them.
I don't have any rating for these brokers. Barron’s, a fine financial weekly newspaper, regularly rates stockbrokers and keeps you up-to-date on commission rates. I don't get any commissions from Barron’s but I highly recommend that you get a print subscription which also includes a free online subscription. They will talk about many fine stocks and other investments that you could use with AIM or in other investing strategies. You should remember we are looking for low – cost brokers. If you see a low – priced broker, you can bet they offer even more services than full commission brokers used to offer many years ago. You get all the bells and whistles with low-cost brokers that you used to get with full commission brokers. Competition is fierce and companies know that prices are determined in and whether an investor will open an account with a particular broker so they all fight to keep their commissions as low as possible and that benefits you the investor.
Below are online brokers you can check out. I tried to put the necessary information you need to check them out.
Online brokers
Ameritrade - $9.95 a trade – http://www.ameritrade.com
Cyber Trader - $9.95 a trade – http://www.cybertrader.com
E-Trade - $6.99 a trade – http://etrade.com
Fidelity – Gold $8.00, $19.95 Bronze – http://www.fidelity.com
InterActive Brokers – up to 100 shares $1.00, up to 1,000 shares $5.00
http://www.interactivebrokers.com/index.html
Charles Schwab - $9.95 – $12.95 a trade – http://www.schwab.com
SieberNet – $14.95 a trade – http://www.siebernet.com
TD Waterhouse - $9.99 a trade – http://www.ameritrade.com
Terra Nova - $5.00 a trade – http://www.terranova.com
Wall St. Electronics - $9.99 a trade – http://wallstreete.com
Scott Trade - $7.00 a trade – http://www.scotttrade.com
Options Xpress - $15.00 for 10 option contracts; $14.95 stock trades http://wwwoptionsxpress.com