Are Free ETF Trades Worth It?

Is there such a thing as a free lunch? Wells Fargo seems to think so with its recent offering of 100 free trades a year, for stocks, ETFs and no load mutual funds.

Before you rush out and transfer your account, take a look at some of the pros and cons. The article “Take Advantage of Free Trades,” brought up some important trade offs you should be aware of.

First, you have to qualify by having $25k in a Wells Fargo account or a loan balance, which can include 10% of your mortgage. Second, as a long term investor, you may at times keep money in money market, waiting for an opportunity to invest. Wells pays only 1% interest on cash as opposed to most discount broker’s 4.5%+.

Most important, as the article points out, is the lack of speed and reliability when it comes to executing orders during times of market turmoil. As a comparison, apparently E-Trade’s web site remained very fast during the last pullback while others slowed down quite a bit.

That to me is a no-no and reminds me of investing in a low daily volume ETF. Remember, the exit doors can get crowed when the markets head south, and you want to be able to get out quickly and without too much slippage in price.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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