3 Cheap (or Free) Ways to Buy and Sell Stocks

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To play in the "poker game'" of stock investing, you used to ante up plenty of broker fees -- and some charge $50 or more per trade. But you can trade stocks for free or virtually free. While you won't have a professional stockbroker holding your hand, you also won't have one taking money out of your pocket with the other. Want to pony up less? Try these three ways to get in the game.

The New Kid at the Table

An interesting concept started in June 2012 on a crowdsourcing model. At MotifInvesting.com, you can buy a themed, weighted group of 20 to 30 stocks with a fee of $9.95 for the entire group. Popular themes include fracking-related stocks, high-yield stocks and trendy tech sectors like 3-D printing. You can also backtest and rebalance a motif, which will cost $9.95 or less. You start with a minimum of $250 with no upward cap. You can also create your own motif, and you'll get royalties when others buy your bundle.

While some motifs are professionally created and weighted, others are crowdsourced, so due diligence is essential. But, just as they are for people who use the major trading platforms, your investments up to $500,000 are protected by the Securities Investor Protection Corp. And Motif has street cred (Wall Street cred, that is) with Goldman Sachs (GS) as an investor and Jerry Gramaglia, the former E-Trade president, as an adviser on the board. As the Brits say, it might be worth a flutter.

Promotions at Online Trading Platforms

The major online trading platforms frequently offer deals like 100 free trades or commission-free trading for 30 to 60 days. Scottrade, E-Trade (ETFC), TD Ameritrade (AMTD), Merrill Edge (BAC) and Schwab (SCHW) offer these promotions for new customers. Most of this promotion trading is plain vanilla buying and selling of stocks or exchange-traded funds (which have their own fees). Still, such a deal: Scottrade charges $7 per trade, Merrill Edge $6.95.

Check the fine print for services (like free dividend reinvesting and the ability to use options) and rules (like a minimum balance). For instance, Schwab offers 300 commission-free trades with a minimum $50,000 balance.

These platforms will automatically generate year-end tax statements of cost basis, gains and losses, and split by short- or long-term gains. Theoretically, one could set up a portfolio and hold it forever free of any more charges. All these platforms also have useful investor advice sections and fine customer service departments. I have used TD Ameritrade and E-Trade customer service to great satisfaction.

Direct Investing Plans

Hundreds of companies have direct investing plans. In most instances, you set up an account with a minimum balance, $25 in the case of Abbott Laboratories (ABT), %VIRTUAL-article-sponsoredlinks%and send in a snail mail check for whatever amount you want to invest. Most have very low fees. One easy way to start is to go to the investor relations page of the company website.

Some cap the amount you can invest in a year or quarter, with amounts varying widely, from $20,000 a year at Briggs & Stratton (BGS) to $250,000 annually at McDonald's (MCD). Most companies will automatically reinvest your dividends at no charge. Some generate those end of year tax statements. Many make it easy to view your holdings online, like McDonald's does through Compushare.

Most importantly, if you buy stocks in one of these ways, you will not get advice from a broker. If you're in this game, it's up to you, as Kenny Rogers sang, to "know when to hold 'em, know when to fold 'em and know when to walk away."

3 Cheap (or Free) Ways to Buy and Sell Stocks
The 1099 forms you received from brokerages and other financial institutions might not be the last ones they send. It's common for them to issue corrected versions a little later. Consider getting your tax return ready to go, then waiting until close to April 15 before submitting it. That way, you can incorporate any last-minute changes and avoid having to file an amended return.
Pay attention to when you sell any holding, because the capital gains tax rates differ for long-term and short-term holdings. Short-term capital gains are taxed at your ordinary income tax rate, which could top 30 percent. Long-term gains (those held for more than a year) get preferential rates, which are zero percent for those in low-income brackets and 15 percent for most of us.
If you own underwater stocks, consider selling them for a loss. You can use those losses to offset gains from other sales, reducing your taxes owed. You can always buy back the asset later, if you still believe in it -- just be sure to wait for 31 days to pass, to observe the "wash sale rule."
If you're planning to sell one or more holdings that will give you a really big gain, submit an amended W-4 form to increase your withholding, or send the IRS an estimated tax payment. Underpaying your taxes significantly during the year can lead to a penalty at tax time. You may be protected by a "safe harbor" provision, though, which can save you from having to jump through those hoops.
If you're planning to buy shares of a mutual fund, determine when it will distribute its dividends. Many funds do so near the end of the year, and when that happens, the fund's share price will drop by the amount of the distribution -- which is taxable to shareholders. It's better to just wait until after that payout to buy in.
Mutual funds with high turnover ratios (reflecting a lot of buying and selling in a fund) have expenses for these trades. It's worth favoring funds with low turnover ratios, especially index funds and index-tracking ETFs, which simply hold onto the mix of securities in a given index, without a lot of trading activity. (Index funds generally outperform their higher-turnover counterparts, too.)
Boost the power of your Individual Retirement Accounts by making your annual contributions early in the year, giving the funds more time to grow. Over decades, it can make a significant difference.
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