|Source: Capital Pixel|
If their situation is at all complicated, I suggest that I set it up by managing it for the first 3 to 6 months. That way I can work on getting their investments located efficiently for tax purposes, take account of capital gains and possible load funds they may have, and even be careful if they have company stock to rollover.
Others cases are pretty basic. For example, they may have $100,000 in a money market fund outside of their 401(k) to invest. They just need some guidance on how to execute a trade to invest in the appropriate ETFs.
Executing a Trade
So this is where we are: they have an asset allocation they are comfortable with and one which they will stick with through the inevitable ups and downs of the market. They understand that what is important to them is where the market is 30 - 35 years from now, not the short-term ups and downs. They understand there are many ways to invest including market timing, stock picking, fundamental and technical analysis. They have chosen to invest in low-cost, well-diversified index exchange traded funds. They understand they are investing in the economy (both domestic and global) and not making bets on individual companies.
So let's say the asset allocation calls for 35% in large cap equity. Large cap equity stocks are the biggest companies in the economy - companies like Exxon, IBM, etc. Let's assume further we are using Schwab as our discount broker. The large cap equity Schwab ETF (zero commission and low expense ratio) has the ticker symbol SCHX.
To start, click on the "Trade" tab (duh!):
This brings us to:
Look at the white box at the bottom. It shows you the bid-ask price (what people are willing to pay for SCHX and what people are willing to sell SCHX for).
The box also shows the volume of shares traded. I suggest, if you have a large number of shares to buy or sell, that you do it in stages, especially if volume is relatively low. For example, assume the asset allocation model targets 35% of assets invested in the large cap equity sector. 35% of $100,000 equals $35,000 to invest in SCHX, which equals approximately 900 shares. I would do the trade in increments of 300 shares.
With light volume, executing a relatively large order can move the market. For the same reason, I tend not to put in orders at the beginning of the day - I prefer to let the market establish a price. Sometimes at the open, the price will get jerked around by a news event.
When the bid-ask price is close together, I typically put the trade in at the market and usually get the ask price. If there is a spread, for example 35.00 bid, 35.06 ask, I will put the trade in at a limit price (you'll see this option in the drop-down list for "order type") at, say, 35.02. A limit order simply says you are willing to buy the shares only at a particular price or lower. I suggest when you put in a limit order to put it in for the day rather than leave it open.
At this point, nothing has been done. You need to click "Review Order." After you review the order and determine that it is what you want to do, just click "Submit Order."
Do this a couple of times, and you'll quickly see how easy it is. As you go through the process, you'll notice various helpful links and information. For example, on the righthand side of the pages we looked at and described, you'll see a box showing available investable balances. If you try to buy more than available balances, you'll get an error message. There are also links to calculators to help you calculate number of shares, etc.
In any of the quote boxes, you'll find that putting in "sch" will produce a list of Schwab ETFs - very useful, for example, if you want a quote on the international ETF but can't remember the symbol.
The bottom line is that learning to manage your own account or even part of your assets can save between 1 and 2% of assets. Over the long term, this will amount to a significant amount of your nest egg.
Disclosure: This information is educational purposes. Individuals should do their own research or consult a professional before making investment decisions. I and my clients own some of the ETFs mentioned above. Also, I am not affiliated and receive no compensation from Charles Schwab.