Free Money? Just Say No!

By Matthew Milner, on Wednesday, September 5, 2018

J.P. Morgan just launched an intriguing new trading service.

It’s a brokerage account that comes with 100 free trades a year.

This is like getting free money, so you should sign up ASAP, right?


Brokers Offering “Free” Bait

The new service from J.P. Morgan is called “You Invest.”

Once you sign up, you get 100 commission-free stock or ETF trades a year. And if you keep a big balance in your account, your free trades are unlimited.

It used to charge $24.95 for these trades, so why did it change its strategy?

Well, as the media has reported, it needed to attract customers from low-cost competitors like E*Trade and Schwab, and from “no-cost” competitors like Robinhood.

But if you want our opinion about all this, here it is:

Don’t take the “free” bait!

Let me explain the 3 reasons why.

Reason #1: Commissions Aren’t Everything

First of all, commissions are only one of the expenses of trading and investing.

For example, mutual funds and ETFs have “management fees” (which are used to pay the fund’s portfolio managers), and “12b-1 fees” (which are used to pay Sales & Marketing costs).

Meanwhile, brokerage accounts are subject to costs like sales fees, transfer fees, and admin fees.

So in reality, J.P. Morgan’s “free” service might not be so free after all.

Reason #2: It’s Tough to Make Money “Day Trading”

Secondly, 100 trades per year is a lot.

If you’re trading that much, you’re considered a day trader.

Day traders buy and sell a stock or security within the same trading day. They do this to try and capture small price movements.

But David Mendels, a Certified Financial Planner with nearly twenty-five years of experience, cautions against this type of active trading…

In his experience, day trading is “almost universally a mistake. Maybe someone out there can pull it off, but I haven't met them.”

So if you’d rather make money than lose it, you might consider trading less.

Reason #3: “The Dow Is Dead”

And now I’d like to explain the third — and most important — reason you shouldn’t take the bait from J.P. Morgan…

You see, as we often write about (most recently, in this essay from May), there’s been a fundamental shift in how wealth is created today.

Up until recently, the vast majority of the gains from the world’s most successful companies were captured by public market investors — in other words, investors in the stock market.

But starting with Google in 2004, most of the gains have been earned by private market investors.

Private market investors invest in “startup” companies at their earliest stages — years before they go public on the stock market, and years before they’re available to investors with “free” J.P. Morgan brokerage accounts!

As we explain in the article we link to above, historically, this shift would have spelled disaster for you. That’s because, for the past 85 years, only super wealthy individuals and institutions were given access to the private markets.

But because of a new set of laws known as The JOBS Act, now you can invest in companies while they’re still early-stage startups — i.e., before they go public.

Don’t Wait ‘Til Monday

We’re not saying you need to abandon the stock market entirely…

But you certainly shouldn’t start trading stocks just because it’s “free.”

For your public stock portfolio, we recommend sticking to the basics: buy low-cost mutual funds and ETFs that provide broad exposure to the market… and then hold onto them.

And to start exploring the private market, check out our weekly “Deals” email… that’s where we highlight some of the best private startup deals in the market.

We send out that email every Monday at 11am EST.

And by the way, if you don’t want to wait until Monday, you can always visit our Deals page — that way, you can use our powerful filtering tools to find deals that are right for you.

Happy Investing.

Best Regards,
Matthew Milner



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Tags: Stock Market JP Morgan

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