This time last year, I wrote that Scottrade, a discount online stock brokerage that I have been using since 2001, was about to launch its own free dividend reinvestment program. I was really excited when I first heard that the program might be available in the fall of 2012 because that’s what I have been waiting for years. As a long time investor with Scottrade, I have every reason to like the broker, but one thing that’s missing from the otherwise great service from Scottrade is free automatic dividend reinvestment.

Over the years, I have gradually shifted part of my investments into stocks that pay regular dividends and a big portion of that investments is in stocks held at Scottrade. For the income generated from these dividend paying stocks, I don’t want to take it as cash distribution or use the money to buy other stocks. Rather I would like to reinvest the distribution and buy more shares of the stock that pays the dividend because, by reinvesting the dividend, I want to have a bigger payout later, at which time I may need to take the distribution as cash. However, since Scottrade doesn’t allow free dividend reinvestment, all the distributions I have received so far ended up being used to buy other stocks, not the way I want to use the payouts.

Well, the fall of 2012 has long gone and Scottrade’s dividend reinvestment is still a program in the making. Early this year, I contacted Scottrade to see when, or ever, the dividend reinvestment will be available. At that time, I even thought about moving my brokerage account from Scottrade to TradeKing because I was tired of waiting. Scottrade told me in January that the program will be available some time this year and asked for my patience.

Since I have been waiting for it for so long, I thought a few more months won’t hurt too much. So I waited. Last night, when I logged into my Scottrade account, I noticed this announcement “Coming Soon … Dividend Reinvestment on Your Terms”. So it’s finally coming? I clicked the link and was led to the “Flexible Reinvestment Program Overview” page that explains a little more what “on your terms” means:

Scottrade will soon offer a commission-free flexible dividend reinvestment program that will allow you to invest dividends from most dividend-paying stocks or exchange-traded funds that you own into most stocks or ETFs.

The program will be different from a traditional dividend reinvestment program (DRIP), which requires you to reinvest dividends back into the securities that paid the dividends. In the Scottrade program, dividends will accumulate into a pool of funds that you can use to purchase shares of almost any stock or ETF. The choice is yours.

The Scottrade program will provide significant flexibility and is designed to let you tailor your dividend reinvestment tactics to your overall investment strategy.

My suspicion from the above program description is that the program is not automatic and I have to the reinvestment myself but since it’s “commission free” I won’t pay the regular commission for reinvesting the dividend. When I contacted Scottrade about dividend reinvestment before, I was offered trading credits that, as I was told, could be used to reinvest dividends I received which accumulated into a pool of cash. With those trading credits, I could reinvest the dividends or use the dividends to purchase shares of any stock or ETF commission-free 

If this is what Scottrade has come up with after all these years, then I have to say that the time for me to move out of Scottrade has finally come because this is NOT what I wanted, a dividend reinvestment program that automatically reinvest dividends for free, the traditional DRIP.

I will need some confirmation from Scottrade on whether the Flexible Reinvestment Program has the option to let me automatically reinvest the dividend for free. If so, I will stey; otherwise, I will leave.

I don’t understand why they try to be creative here.

Original Post on www.thesunsfinancialdiary.com

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Original Post on www.thesunsfinancialdiary.com

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I have been a Scottrade customer for years and whenever I need to add fund to my brokerage account, I use an external bank account linked to the Scottrade brokerage account to transfer money before buying stocks (see my post on how to fund Scottrade brokerage account). It is quite convenient actually, though the system has changed a couple of times. Basically, I can transfer money from my bank account at any time during the day and use the money just transferred to buy stocks immediately even before the fund is settled (the exception is stocks below $4 a share which require cleared funds in order to purchase). This actually is one of the features I prefer Scottrade over other discount brokers because most of them require at least 3 business days of waiting period before any new money can be used for trading.

In addition to using Scotrade Money Direct to transfer fund from an external bank to Scottrade, you can also use Scottrade Bank account to fund your brokerage account. 

Though I don’t have a Scottrade Bank account, I would imagine that money in the Bank account can be used to purchase stocks immediately without the above mentioned limitation because the money in the bank account would have already been settled by the time you want to buy shares (there’s no point to transfer money from an external bank account to the Scottrade Bank account right before purchasing stocks).Of course, having fast fund transfer is one of the benefits, or conveniences, of having a Scottrade Bank account. Just like what I usually do when selecting a bank account, I also want to have the benefit of having my money in the account, i.e., the return of the money. That’s exactly the reason I don’t want to keep any extra money in the brokerage account because I got nothing for having the money there, though I can use the money to buy shares with no restrictions. Unfortunately, the new Scottrade Bank accounts, including checking, savings, CD and Money Market account, don’t impress me in terms of returns. For example, the savings account has a rate of 0.03% APY for balance below $10,000. That’s close to nothing. And if the daily balance goes up to $100,000, the yield is just 0.10%, better than nothing but still.

So basically, the Scottrade Bank account is a better place to park your money that you want to be ready for purchasing shares, cheap or expensive, than the brokerage account, though you still earn almost nothing for your money.

In addition of being a better tool to transfer money between Scottrade broker account and bank account, there are some other features of the new Scottrade Bank account, including

• No monthly account maintenance fees
• Free online bill pay
• ATM fee refunds on cash withdrawals (you will be charged when withdrawing cash using Scottrade debit card, but Scottrade Bank will reimburse the sum total of your transaction charges at the end of the month)
• Free Scottrade debit card
• Convenient local customer support
• FDIC insurance

There’s one condition for the Scottrade Bank account though. The bank account is tied to Scottrade brokerage account, which means that you have to have a Scottrade brokerage account including individual, joint, trust, traditional IRA or roth IRA. So you can’t open the bank account directly without having a broker account first. Scottrade Bank has no minimum account balance requirement.

The initial deposit for the bank account is $100, which is pretty low. And you can fund the new account through a external account. The Scottrade Bank ABA routing number is 081086674.

If you are interested in a Scottrade brokerage account and a bank account, you can open open a Scottrade account using promo code KGKP0724 to get 3 commission free trades.

Original Post on www.thesunsfinancialdiary.com

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No, I haven’t done anything yet, but I am seriously considering making the move.

I have been a loyal Scottrade customer for more than a decade. In the past, I have said plenty of good things about the broker here, such as its customer service, trading platform, and the instant deposit feature that lets me use new fund to buy stocks without having to wait for the fund to settle. I like the last feature a lot because with other brokers, including TradeKing, I usually have to wait from 3 to 5 business days for any new deposit to be cleared before using the money in trades. Despite my overall sanctification, I have also been bothered by the lack of free dividend reinvestment option at Scottrade for years.

Related: Scottrade Dividend Reinvesstment Plan?

When I opened my Scottrade account in 2001, there weren’t as many selections of discount brokers as we have today and at that time, I didn’t know much about dividend and the importance of dividend reinvestment either. I just wanted a cheap brokerage account to buy stocks and Scottrade met my requirement pretty well. When I first started, I traded stocks like Lucent and Nortel, making a few quick bucks and happy with it. But I learned about stocks and dividends, I found myself buying more and more dividend paying stocks than high growth potential stocks. Because I prefer the “set and forget” approach, I don’t do a lot of trades. Owning dividend paying stocks and having the dividends reinvested allow me to manage those stocks passively while accumulating more and more shares over time.

Related: Buy DSPP Stocks from ComputerShare

Since Scottrade, which is my primary broker, doesn’t offer free automatic dividend reinvestment, I have gotten accounts at TradeKing and ComputerShare in recent years and have used those accounts, particularly ComputerShare, to buy stocks with regular and growing dividend payouts. But, I still have quite a few stocks at Scottrade that pay dividends, including the China Life Insurance (LFC), a stock that I have held since 2003. So far, all the dividends at Scottrade have been paid as cash. Though I haven’t taken any dividend distribution out of the account, I have never used the payment to buy the stock either, which I would prefer to do. Currently, the dividend paying stocks and ETFs I have in my Scottrade account are:

• Abbott Laboratories (ABT): 1.70% yield
• AbbVie Inc. (ABBV): 4.70% yield
• Apple Inc. (AAPL) : 2.0% yield
• Bank of America Corp. (BAC): 0.30% yield
• China Life Insurance Co. Ltd. (LFC): 0.90% yield
• Citigroup, Inc. (C): 0.10% yield
• Las Vegas Sands Corp. (LVS): 1.90% yield
• PowerShares Golden Dragon China (PGJ): 2.40% yield
• PowerShares Water Resources (PHO); 0.87% yield
• Visa Inc. (V): 0.80% yield

When a Scottrade branch manager told me last summer that free dividend reinvestment could come in the fall of 2012, I was very excited that the long wait could finally be over soon. But that didn’t happen and the last word I heard from Scottrade is that it’s still a “work in progress” and it could happen some time this year.

I have been waiting for this for years and I feel at this point my patience is running out. Yes, I still have some commission-free trades in my Scottrade account that I can use to reinvest the dividends without paying the regular commission as Scottrade has suggested. But that’s different from free automatic dividend reinvestment, which 1) is automatic so I don’t have to remember to do myself, and 2) allows me to purchase fractional shares which is not possible for manual trading. With TradeKing, however, these are all possible under their dividend reinvestment plan, not to mention that TradeKing charges less stock trade commission than Scottrade does ($4.95/trade vs. $7.0/trade).

Related: Compare Online Discount Brokers 

If you are also a Scottrade customer, maybe you can also let them know (Twitter @scottrade) that this is long over due so maybe they can move a little faster on the plan.

Original Post on www.thesunsfinancialdiary.com

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Do you have a regular, non-retirement brokerage account with Vanguard? If you do, do yo still remember the account opening process?

I just opened my first Vanguard non-retirement brokerage account and I found the whole process wasn’t straightforward and the experience wasn’t a pleasant one. Yes, I have been a vanguard customer for more than 10 years and currently have a number of accounts with them. But all those accounts are retirement savings accounts, IRA, Roth IRA, and SEP-IRA. After recent adjustments I made to how we invest our money (which I will talk about in detail later), I decided to open a Vanguard brokerage account so that I can buy some Vanguard ETF shares.

We have already known all the advantages Exchange-Traded Funds (ETFs) have over traditional mutual funds, such as increased flexibility of trading and lower costs. An additional benefit of buying Vanguard ETFs using a Vanguard account is that all the transactions are commission free.

Related: How to Trade ETFs for Free

Since ETFs are traded just like individual stocks, buying and selling ETFs usually involve commissions paid to the broker with which the transaction occurs. For example, let’s say that I want to buy 100 shares of Vanguard Materials ETF (VAW). If I purchase the shares through my brokerage account at Scottrade, then I will have to pay a $7 commission for the transaction. $7 is not a lot of money compared to the principle, but it’s still a fee I want to avoid to pay if I could. This is the case with almost any other brokers, the only difference is the amount of commission paid. However, with Vanguard, the commission is waived entirely when trading Vanguard ETFs, whether it happens in a regular brokerage account or retirement account. Since I am shifting away from actively managed mutual funds to low cost index funds, especially ETFs, it makes all the sense to get a Vanguard brokerage account and trade Vanguard ETFs from there without paying any commission.

Related: How to Get Commission Free Trades from Scottrade

So the other night, I went to Vanguard.com and logged into my account. After I clicked the Open An Account tab from the top of the screen, I was presented with four options. Since I was neither rolling over a 401(k) account nor transferring an account from another institution, the valid options to me were either

• Open a new account: Open a new Roth IRA, traditional IRA, general savings account, or college savings account, or add a new fund to an existing account. Or
• Add a new brokerage account using your existing Vanguard information: Buy and sell stocks, bonds, ETFs, CDs, and non-Vanguard mutual funds. You’ll use existing mutual fund account information to open the new brokerage account.

Since all I want is a Vanguard brokerage account to trade Vanguard ETFs and the account is not an IRA account, not a general savings account (seriously, I didn’t know what this really is and it doesn’t appear to have anything to do with a brokerage account), not a college savings account, and I certainly didn’t want to add a new fund to an existing account, so I figured that the last option was the one I should use because I want to open (or add) a new brokerage account to buy and sell ETFs, and I can use my existing Vanguard information for this new account to save me some time during the opening process.

I went ahead with the last option and following the steps I was asked to select an existing account as a reference for my personal information. All my existing accounts, SEP-IRA, Rollover IRA, Roth IRA, were listed. To me, there wasn’t any difference among those accounts as far as my personal information is concerned, I simply selected the first one in the list, SEP-IRA, and continuted to finish the process.

Well, guess what, the next day when I logged into my account again, I didn’t see my regular, non-retirement brokerage. Instead, I got another SEP-IRA brokerage account!!! That’s not what I wanted. So I called Vanguard and asked why. I explained what I did and was told that I should use the first option, Open a new account, instead of the last one. I told the representative that I wanted a new brokerage account to buy ETFs and the first option didn’t say anything about brokerage account or ETFs, and the last option appeared to be the only valid option to get what I wanted. Then the representative told me that the general savings account in the first option is what I needed to choose in order to open a regular brokerage account.

General savings account? Brokerage account? I really had a hard time connecting the two together, but that’s what Vanguard calls it. The thing is at Vanguard, I can’t really just open one brokerage account alone to buy ETFs. Any Vanguard brokerage account has to be linked to another account, retirement or non-retirement, existing or new, which needs to be funded first. When purchasing ETFs, money will be swapped out of that account to the brokerage account to the transaction. In my case, since I didn’t have any existing account to link to the new brokerage account (and that’s the mistake I made when I used my SEP-IRA account as “reference”), I ended up getting two accounts instead of one: a “general savings account” which holds Vanguard Prime Money Market Fund as funding source for the brokerage account, and the actually brokerage account that holds the ETF I purchased.

Sure, Vanguard has some awesome products, but I don’t understand why they make such a simple process as opening a brokerage account against intuition. I have opened many brokerage accounts with different companies before, and this was the first time I actually failed. I mean, I could never make the connection between what was shown to me, general savings account, and what I want, a non-retirement brokerage account, and I don’t see the necessity of having two accounts to make it work.

Why can’t this be a little simpler or, at least, clearer?

Original Post on www.thesunsfinancialdiary.com

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