Buying vs Renting

I came across an article from US News on Yahoo's front page today. The author argues that while it may have been different in the past, it is better to rent than to own your home.

The author's main points are:

During a soft housing market, "homeownership becomes little more than rent, from a bank." Buying a home "can turn into an expensive, potentially money losing proposition." For the value of the property, at times like the one we're in now, can drop.

The author claims that putting the down payment into the stock market can get you better returns than using it to buy a home. Homeownership comes with various drawbacks, like property taxes and maintenance expenses. If you rent, and save the difference between your rent and the ownership expenses you would have had, it can add up to a lot of money over time. So, the author concludes, renting is better than owning.

Although this strikes me as plausible, I think that in most cases it's not true.

There are a number of assumptions here that are not necessarily correct in all cases. For instance, why assume that your mortgage payments would be more expensive than rent on the same property? I'm sure this is true in some cases, but is it true in so many as to make renting cheaper than owning in general?

The landlord is trying to make a profit, right? Doesn't he have his own mortgage to pay, or at least the incentive to recoup the expenses he incurred in buying the property? Wouldn't this be reflected in the rent?

And guess who's paying the property taxes and for maintenance in most cases? The tenant! If these expenses are not included in the rent, the landlord is not a very good businessman. If the landlord is to break even, expenses related to the property must be passed on to the tenant.

Since there is a homeowner in there somewhere (or else there'd be no landlord), renting cannot be cheaper than owning for long, if it ever is. If renting is cheaper, more people will do it. This rising demand will drive rents higher.

Put another way, some landlords will charge lower rents than their expenses. But most won't. Either they'll become renters themselves, or charge higher rents. In the end it will be cheaper to own rather than rent.

But is it cheaper to rent than to own now? Let's say you buy a house for $400,000 with an $80,000 down payment. At current rates, 7% in the NYC metro area, for example, you'd pay around $2,128.97 a month in mortgage payments on a 30 year fixed mortgage (on the $320,000 you borrowed). Adding in reasonable property taxes, insurance rates, and your down payment, let's say you pay $2,800 a month.

This is about as much as you would pay for a two to three bedroom apartment, depending on the neighborhood. Renting the house would be significantly more expensive, if only because you'd get more space. And again, why would the landlord charge you less than he's paying?

When the house is paid off, the homeowner's monthly payments are reduced significantly, for all he has to worry about is insurance, property taxes, and the occasional repair. The renter, on the other hand, continues to pay the same (probably steadily rising) monthly fee for the rest of his life.

There are other benefits to homeownership. While a house can lose value, unless it becomes worthless, the owner can recoup at least some of what he has put into it when he sells. We can't say this for the renter.

Also, the homeowner has greater flexibility with what he can do with his property. For example, he can rent it out to others (in whole or in part) and can leave it to someone when he dies. The renter cannot do the latter, and usually has more difficulty with the former.

Historically, houses appreciate in value over time. Slumps don't last forever. Also, when you buy a house you get an income tax benefit, and you can deduct your mortgage interest payments. Unless you rent for business purposes, no portion of your rental expenses can be deducted. Rents rise over time. Tenants obviously don't benefit from that.

Another of the author's assumptions is that the currently decreasing home prices make it more expensive to own a home than to rent. This is true for those who already own homes (and bought them during the bubble). But what about prospective home buyers? Housing prices are going lower. Rents are holding steady or are rising. How can it be that buying a home now is more expensive than renting the same property?

Whether it's better to rent rather than to buy depends on how much money you'd save over owning during the period of the mortgage, and whether this would be enough to cover future rent payments as well as leaving something for your heirs. There are scenarios where this can happen. (Most of these involve disciplined saving, which most people don't do.) I don't dispute that. But are they common enough to make the benefits of home ownership over renting a "myth"? I hardly think so.

Update here.


Is It Time to Start Buying Some Dogs?

We all know the motto that tells us to invest when everyone else is fearful and to sell when everyone else is optimistic. We also know that over time, the market's tendency is to go up, not down. The Dow Jones Industrial Average, one of our three principal market barometers, is down around levels unseen since September 2006.

The erstwhile popular Dogs of the Dow strategy has averaged an annual return of 17.7% from the period 1973 through 2006. It hasn't done as well the last couple of years, but all investing strategies have their bad years. For those who have never heard of it, the strategy is very simple. At the start of the year, find and buy the ten highest yielding DJIA stocks (the dogs as they're called). Keep them for a year and a day, find the new list of the highest yielding DJIA stocks, and repeat. The idea is that you can evaluate large cap stocks based on their yields. The larger the yield, the more likely it is that the market is undervaluing the stock.

Here are the Dogs of the Dow, with their yields as of market close on 6/26/08:

Bank of America (BAC) 9.6%
Pfizer (PFE) 7.2%
General Motors (GM) 7.6%
Citigroup (C) 6.8%
Verizon (VZ) 4.9%
AT&T (T) 4.7%
General Electric (GE) 4.5%
Merck (MRK) 4.1%
JP Morgan Chase (JPM) 4%
DuPont (DD) 3.7%

Look at those yields! If the DJIA contains the best companies and the market over the long term tends to go up, aren't these dogs a steal? Maybe it's time to start buying a few shares here and there while everyone else is selling in this climate of fear?

I'm a bit skeptical for most of these. One common variation on the Dogs of the Dow strategy is to avoid the highest yielding stock, as it's usually the one facing the worst problems. But take a look at the top four.

Bank of America's CEO has recently stated that the dividend is safe. I don't know if I believe him. This one could turn out to be a great investment, but who knows how many subprime write-downs they have left? I'd stay away from this one.

Pfizer has its own dividend cut rumors. It also faces expiring patents on its most profitable drugs, like Lipitor (although it did recently buy an extra five months on that one).

General Motors was downgraded to a sell by Goldman Sachs, sending its shares to 53 year lows. High gas prices, the tight credit market, and the housing crisis are likely to continue to weigh on what was once a great American automaker.

Citigroup appears to be in even worse shape than Bank of America. It was just downgraded to sell by Goldman Sachs, which expects the struggling bank to post a $9 billion write-down in the second quarter. Citi's current yield of 6.8% belies its 41% dividend cut back in January of this year.

Verizon seems to be a better prospect. If the deal to buy Alltel goes through, Verizon will be the largest wireless provider in the US. While analysts have been concerned with the deal's price tag, the acquisition should add to Verizon's bottom line as soon as it's completed. Verizon's fixed line business, for services such as land-line telephone and DSL, also has some potential. Although landline phone use is declining and Verizon faces mounting competition from other internet providers, over the next few years the firm is poised to pick up millions of new customers (over two million a year). I don't think it's unreasonable to start picking up a few shares of this dog--but not a full position, we may be entering a bear market.

AT&T is also having some land-line troubles, as well as wireless successes. The company continues to cut costs. It has slashed over 14,000 jobs over the last three years. The firm's balance sheet is relatively clean, and it continues to buy back shares. AT&T hopes the culmination of its network upgrades, U-Verse, which is set to be deployed in 2010, will attract more customers. AT&T also has a deal with Apple (AAPL) for the new iPhone, which should also bring in new customers. As with Verizon, this stock may certainly go lower, but this doesn't seem to be a bad time to start picking up shares.

I think GE is being unfairly punished by the market. With most of its sales coming from abroad, its various footholds in emerging markets, and its alternative energy and water infrastructure businesses, I think the company has a bright future. This is not to say that the firm does not have problems (NBC Universal, GE Capital). Still, this sleeping giant is ready for some solid earnings growth in the future. If it falls lower, I'm looking to pick up some more shares.

Like Pfizer, Merck has some considerable challenges ahead of it. These include patent expirations on some of its biggest selling drugs (e.g., Singulair, Fosamax, and Cozaar) and increased competition in the near future on drugs it currently holds a monopoly over (e.g., Gardasil and Januvia). Merck also faces billions of dollars in potential liability from continued Vioxx lawsuits. Added to this, the FDA has rejected a number of the company's new drugs. A few drugs in the pipeline have similar chemistries, so they are likely to also be rejected. While the short term prospects are not too bad (until Glaxosmithkline starts selling alternatives to Gardasil and Januvia), the long term seems gloomy. In a couple of years, Merck might be in the same position Pfizer is in today.

Like the other financials, JP Morgan Chase has some difficulties. Losses stemming from home loans are likely to continue, and may even accelerate by the end of 2008. As the economy continues to slump, people use their credit cards less. They may also have trouble paying what they owe. This is likely to hamper Chase's earnings. At last count, the bank has over $20 billion in risky assets, and who knows what it's going to get when the Bear Stearns deal closes. There are some positives, though. The firm's retail banking division is growing. Its balance sheet also seems less affected by the subprime mess than those of its DJIA banking counterparts. Eventually financials will be great buys. Maybe the time to start picking up shares is now, but I'm not even tempted to do it.

DuPont, like GE, seems to be another stock being unfairly punished by the market. While its housing exposure is dampening profits, the firm has the world's second largest seller of seeds. There is a food crisis, and DuPont is well positioned to profit from it. I think much of my reasoning for buying it in December of last year still holds true. I'm certainly glad I subsequently sold it, but I think it'll soon be a good time to buy it back.

That's all the dogs. I think the financials are too scary, as are the drug makers and GM. I feel better about T and VZ, and I like DD and GE.

Disclosure: At the time of writing, I owned shares of GE. I also own shares of BlackRock's Enhanced Dividend Fund, which owns shares of AT&T, Bank of America, Citigroup, JP Morgan Chase, Pfizer, Merck, and Apple (not a Dog of the Dow). I most likely own the rest of the dogs through the fund, but they are not in its top 25 holdings.

Growth Investing and William O'Neil

This is the first in a series of posts about noted investing masters and the strategies that made them so successful.

I begin with William O'Neil, one of the quintessential growth investors. He is probably best known for his newspaper, the Investor's Business Daily. The publication is a treasure trove for growth investors. It has very short news summaries, lots of charts and even more stock statistics, like stocks' earnings rank and relative strength, that are usually not found in regular business newspapers like the Wall Street Journal. Bill O'Neil also wrote a book, How to Make Money in Stocks. It details everything the master investor learned about growth investing.

The CAN SLIM System

O'Neil calls his growth investing system CAN SLIM. It is an acronym that stands for the following: Current earnings, Annual earnings, something New happening at the company, Supply of stock, Leader, Institutional investors, Market movement.

A winning growth stock, according to O'Neil, must have the following:

1. Current earnings are up at least 25%. Quarterly sales should also be up at least 25%. Both current earnings and sales growth should be accelerating. That is, current earnings and sales growth have to be larger than earnings and sales growth last quarter. An example of accelerating earnings is having earnings growth of 10% in the first quarter, 15% in the second quarter, 20% in the third quarter, and so on. O'Neil prefers for the pace of acceleration to be accelerating as well. That is, not only should earnings growth be accelerating, it is helpful for the rate of acceleration to be accelerating as well. An example of decelerating earnings is earnings growth of 20% in the first quarter, 15% in the second quarter, 10% in the third quarter, and so on.

2. Annual earnings per share should have grown at least 25% (preferably over 50%) in each of the previous three years, and should have been accelerating over the past five years. You should look for companies whose earnings estimates predict further accelerating growth. Additionally, annual return on equity should be at least 17%, and if possible, margins should be expanding. Sales for the last three quarters should also be accelerating.

3. Some New catalyst should be there to drive the stock's price to new heights. This could be a new product or service, a new and better management team, some change in the company's industry that will help the company, new government regulations that will help the company, etc. Whatever the something new is, it has to have a positive impact on the company's future.

4. The Supply of the company's outstanding stock should be small and the demand should be large. An indicator of growing demand is the stock's volume growing as the share price rises. All things being equal, stocks with less shares outstanding will perform better than stocks with more shares outstanding.

5. The stock has to be a Leader in its industry. That is, the stock should have the best relative price strength in its industry, and the industry in which the stock is should also be a leader. For example, in 2007 and the first half of 2008, the leading industries have been agriculture (think of all the soaring fertilizer stocks) and energy. The laggards have been the home builders and financials.

6. Institutional investors should be buying up shares of the company. This requirement is sort of an addendum to the supply/demand requirement. Pension plans, insurance companies, mutual funds, banks, and governmental investors are a great source of demand. They should be buying shares of the target stock.

7. The Market must be in a confirmed upward trend. You can find a stock that fits all six of the above requirements, but if the market is in a downward trend, you will probably lose money. Only buy a stock that fits the above six requirements when the DJIA, S&P 500, and Nasdaq are all going up. O'Neil advises that you watch the daily price and volume charts of the major indices to determine when the market is in a confirmed upward trend.

A quasi-requirement, one that need not be fulfilled but that is helpful, is that the target company have a clean balance sheet (the less debt the better). Another suggestion is that management should hold a significant stake in the company.

Besides the seven step method, O'Neil has the following tips:

When to Buy

Let's say you find a stock that fits the six requirements, and requirement number 7 is also met. O'Neil suggests you should buy the stock at the "pivot point." This is where the stock begins moving to new highs after a consolidation period, a relatively flat trading range over a period of time that can range from days to months.

Don't worry about the stock's valuation measure, like the P/E. It's ok if it's high. O'Neil suggests that the market always values stocks fairly. Cheap stocks are cheap for a reason, and they can always get cheaper. On the other hand, stocks that seem too expensive can rise even higher.

Stop Your Loses, Don't Average Down

Whenever new money put in a stock losses 8%, O'Neil says you should sell it. So, let's say you buy stock XYZ for $1,000. If the stock price falls and your position is now worth $920, you should sell it. Or, suppose it does well or stays flat, and you add new money to it (see below). If the stock then goes down and you're losing 8% on the new money, you should sell the new position. If the original money isn't losing 8%, you should keep it. That is, treat each buy as a separate position. Sell those positions that lose 8%.

The reasoning here is that it's harder to make up loses, and stocks can always keep dropping. For example, if a stock drops 50%, it has to double for you to break even.

O'Neil thinks you should always sell the worst performing stocks first. He uses an analogy of running a store to argue against averaging down. Imagine you run a store where you have two products, A and B. Let's say A sells very well and B sells poorly. When preparing for a shopping holiday, which would you stock up on? A obviously, and you'd certainly ditch B.

Averaging Up

O'Neil calls averaging up "pyramiding." This follows on the retail store analogy above. You should buy more of your winners, and get rid of your losers. Weeding out your losers is supposed to stop your loses. Buying more of your winners is supposed to increase your profits. The reasoning here is that you don't have to be right all or even most of the time; you just have to lose less than you gain.

O'Neil recommends putting more money into a stock up to 5% from the previous buy point. He says not to add more money if a stock has risen higher than 5% from the buy point.

Don't Diversify

Your CAN SLIM portfolio should have only a few stocks. First, there aren't many stocks that fit all the requirements anyway. Second, "the best results are achieved through concentration." You should "have one or two big winners rather than dozens of very small profits."

When to Sell Winners

You should keep your stocks at least for eight weeks (unless they start losing 8%). Sell when your stock rises 20%. If this happens before the minimum eight week holding period is over, keep the stock until the eight weeks are up, and then evaluate it with the CAN SLIM method to see if it has the potential to go higher.

Just as you should build your position gradually (up to 5% above your entry price), you should sell gradually as well.

My Opinion

I hope I have not been biased in my summary of O'Neil's system for investing in growth stocks. While there are some points to be made about the advantages of O'Neil's system, I wouldn't use it myself.

Here is what I think is good about CAN SLIM. The instructions, for the most part, are precise. It seems not very hard to follow them step by step. Additionally, the six requirements seem rigorous enough to weed out most terrible stocks. Adding money to your winners can also be good advice.

Nevertheless, I don't like the system.

1. It seems to be a risky one considering that we're only going for a 20% gain. The first six steps virtually guarantee that you will find stocks with huge investor expectations. Such stocks, with accelerating earnings, usually have big P/E ratios. While I don't think the P/E ratio is a tell all by any means, if the company stumbles and does not deliver on expectations, even by a small amount, its share price can plunge. A stock with a P/E of 100 can easily be sent down to a P/E of 80.

2. I have a lot of trouble with step 7. How do you determine that the overall market is in an upward trend? Sure, hindsight is perfect, but how do you know while it's happening? I've always been skeptical about using charts to predict market movements. Most moves, up or down, in my view anyway, seem to be correlated with news. Last summer, the DJIA was making record highs. Let's say you started the CAN SLIM method near the peak. You found a couple of stocks that fit the first six steps. At step 7, you surely would have thought the market was in a confirmed upward trend. Then August came and subprime was back in the headlines. So much for a confirmed trend.

Or more recently, think of the latest stock market drop in March 2008. The DJIA fell below 12,000. It rose over April and May back over 13,000. Today, 6/26/08, it's back down below 12,000. How is an investor to do step 7?

3. The 8% stop loss requirement is silly. While it brings a measure of discipline--follow the plan and don't succumb to emotions--I don't think it's good advice with the kind of stocks you'll find with O'Neil's system. As I said above, these stocks most likely have high P/E ratios. This makes them more likely to be volatile. You can suffer a 10% loss in one day. On the system's rules, you should sell. But how will you feel when the stock rebounds over the next few days and weeks?

It's not at all uncommon for growth stocks to fall and rise at double digit rates over a short period of time. Here's a recent example from my own trading.

4. How do you know where the pivot point is? Again, it's easy to find in hindsight, but very difficult when it's actually happening.

5. I'm a firm believer in averaging down. It's the only way, short of luck, to get the best price for a good company. Mind you, it has to be a good company (or should I say great company?). Averaging down on a POS, as they call it on the Yahoo Finance message boards, will just lose you more money.

If you are interested in learning more about the CAN SLIM system, I suggest you pick up a copy of Investors Business Daily.

You might also be interested in a mutual fund that uses the system to select stocks: the CAN SLIM Select Growth Fund (CANGX). It has been very volatile, as you may have suspected.


A Look at WisdomTree's New Currency Income ETFs

WisdomTree has recently unveiled a group of eight Currency Income ETFs. Four of them, tracking foreign money market rates related to the Brazillian Real, the Chinese Yuan, the Indian Rupee, and the Euro, started trading in mid May on NYSE Arca. ETFs tracking money market rates related to the Japanese Yen and the US dollar came about a week later. Today, 6/25/08, brings the addition of the New Zealand Dollar and the South African Rand.

The eight new ETFs are as follows:

WisdomTree Dreyfus Brazillian Real Fund (BZF)
WisdomTree Dreyfus Chinese Yuan Fund (CYB)
WisdomTree Dreyfus Euro Fund (EU)
WisdomTree Dreyfus Indian Rupee Fund (ICN)
WisdomTree Dreyfus Japanese Yen Fund (JYF)
WisdomTree Dreyfus New Zealand Dollar Fund (BNZ)
WisdomTree Dreyfus South African Rand Fund (SZR)
WisdomTree Dreyfus US Current Income Fund (USY)

The US fund has an expense ratio of 0.25%. The Euro and Yen funds have expense ratios of 0.35%, and the rest have expense ratios of 0.45%.

All the funds are actively managed. They seek to preserve capital and maintain liquidity while providing current income by investing in short term instruments (no longer than 90 days), including forward currency contracts, government bonds, bank time deposits, corporate debt, and commercial paper, associated with the specific regions they track.

The funds tracking the money market rates of emerging markets, like Brazil and India, hold a combination of foreign and US instruments. WisdomTree's reason for this is that money market instruments in developing markets are less liquid and accessible to foreign investors.

While every fund's holdings are subject to change without notice, here is a sample of what you may find in the Real Fund's holdings, which is similar to the other Currency Income funds tracking emerging market money market rates:

1. Currency contracts for the Real, at various different prices (of course, the fund tracking the Indian Rupee, for example, has currency contracts for the Rupee instead of the Real).

2. Government bonds (FHLB DN)

3. Various short term commercial paper from banks, like General Electric Capital Corporation, UBS Finance, Royal Bank of Scotland, Danske Corporation, and Bank of America, among many others.

The funds tracking more mature markets have combinations of bank time deposits and foreign bonds. For example, the Euro fund has time deposits at various different rates with such banks as Barclays, UBS, and Citibank. Bonds represent France, Germany, and the Netherlands.

WisdomTree advertises the funds as providing investors with access to the higher yields available in foreign markets and greater portfolio diversification, as money market securities around the world have in the past shown low correlation to domestic asset classes.

The US fund is supposed to pay a monthly dividend. While WisdomTree does not state so explicitly, it appears the other funds will have monthly distributions as well. Although they seek to track money market rates, the ETFs will not have stable share prices. That is, they will behave like ETFs and not like money market funds.

I am particularly interested in the Real and Yuan funds, as both currencies are expected to appreciate against the US dollar in the future.

That said, I would wait before buying any of these ETFs. My reasons are:

1. Their yields are as yet unknown.

2. Being less than a month old, the ETFs are very thinly traded. For example, EU's average volume is only slightly over 7,000 shares per day. The Real Fund is more popular, but still thinly traded with an average volume of 108,000 shares per day over the last three months.

3. We don't know yet if the funds will do what they're supposed to. This is especially true of those funds (tracking emerging markets) that hold some instruments not associated with the regions they track.

Another way to put this is, since they're actively managed and don't just follow an index, the ETFs NAVs will be affected by the fund managers' performance. I have been unable to find any information about what person or persons manage the ETFs.


Discount Broker IRA Accounts

Everyone should have an IRA, whether traditional, Roth, or both. It's just good financial sense. But where is the best place to open an account? There are a few options. I outline several below.

As I've already reviewed TradeKing, Scottrade, and Sharebuilder regular taxable accounts, what I say about these brokers here is specifically about their IRA accounts.

I also go over IRA accounts at Firstrade and TD Ameritrade. At some point in the future, I hope to write up regular individual account reviews for these brokers, as well as for Zecco and Sogotrade, among others. I also plan to review Zecco's IRA. Sogotrade doesn't offer one yet.


See my review of TradeKing's regular individual account.

The following relates specifically to the IRA or Roth. The good thing about a TradeKing retirement account is that there are no custodial fees. As for the disadvantages, there is a $50 fee for closing or transferring your account. Also, it's a little complicated making electronic deposits to your IRA (you have to fax or mail them a form with your bank information, specifying how often and how much you want to contribute to your account).


See my regular individual Scottrade account review for the general good and bad about Scottrade, which applies to the IRA. As for the IRA specifically, it has the advantage of having no custodial fees and no account transfer fees.

ING Sharebuilder

See my Sharebuilder review for details about the regular individual account.

The Sharebuilder retirement account has one major disadvantage. There is an annual $25 administrative fee. If you do not pay it on time, it gets taken out of your IRA account. If you do not have enough cash at the time, your positions may be sold to cover the fee.

This may dissuade you from considering a Sharebuilder IRA. However, depending on how many trades (stocks and mutual funds) you make per month, even with the $25 fee Sharebuilder may be the most cost effective IRA broker listed on this page (the fee is waived if you sign up for the standard or advantage accounts--see the individual account review for details). It is also the only one that enables you to buy fractional shares.

As I trade infrequently in my Roth IRA, Sharebuilder's $25 fee made it more expensive for me than other brokers. This may not be the case for your situation.


As of November 1, 2008, we are pleased to inform you that ShareBuilder no longer has an administration charge for IRA and ESA account types. This applies to all IRA and ESA accounts, regardless of when your account was opened.



1. No custodial fees, account minimums or maintenance fees.

2. Good customer service.

3. $6.95 a trade.

4. Easy to use website.
5. Easy account setup.

6. Easy to make electronic deposits.

7. Wide choice of mutual funds and fixed income.

8. Decent yields on cash.

9. News and research are decent (provided by Standard and Poor's).

10. Free real-time quotes.

11. $9.95 commission for no-load mutual funds.

12. Free dividend reinvestment


1. No fractional share buying (just as with TradeKing and TD Ameritrade, you get fractional shares when you automatically reinvest dividends).

2. Only one physical location (in Flushing, NY).

3. Electronic deposits have to be $100 or more.

4. $500 minimum for mutual fund investments. Additional mutual fund investments have to be $100 or greater.

I've had it for a while now, and so far I'm very happy with my Firstrade Roth IRA.

TD Ameritrade


1. No custodial fees.

2. No account minimums or maintenance fees.

3. Your electronic IRA contribution deposits are instant. Enter the amount, press the submit button, and the money is available for use in your account.

4. Plenty of investment options, including thousands of mutual funds (many of which are no-transaction-fee funds) and fixed equity to choose from.

5. Good research and news, provided by Morningstar, Standard and Poor's, Vicker's Stock Research, First Call, and MarketEdge. TD Ameritrade also has a pretty good stock screener.

6. Free real-time quotes.

7. Easy to use interface.

8. Account sign up takes only a few minutes.

9. No commissions on load funds or no-transaction-fee funds.

10. Fast order execution.

11. Free dividend reinvestment.

12. Plenty of physical locations.


1. Transferring your entire IRA to another broker will cost you $75. A partial account transfer costs $25.

2. Cash yields are terrible. As of writing, the highest APY is 0.5%, and that's for accounts with $200,000 and over.

3. $9.99 for stock and ETF trades. Telephone trades are $34.99, and broker assisted trades are $44.99.

4. No-load mutual fund orders come with a $49.99 commission.

5. No fractional share buying (for stocks and ETFs).

If you agree with me that your dividend heavy investments (such as REITs, funds that throw off a lot of income, and dividend paying stocks) belong in an IRA and dividends should be reinvested, you're better off avoiding Scottrade for your IRA.

As TD Ameritrade is expensive (and you can do your investment research elsewhere), it is probably worse than Sharebuilder, TradeKing, and Firstrade. If you like fractional share buying, Sharebuilder is the account for you, out of those listed above. As for TradeKing and Firstrade, the difference for me was how to fund my account. I don't have a predictible income stream, so Firstrade's convenient electronic deposits were best for me.

Updated July 2, 2008