Zero dollar brokerage – too good to be true?

We were introduced to Robin Hood a few months ago. This is the outfit in the US offering commission-free trading. Like many tech companies it seems like they’re going for user-adoption first, and will work out how to monetise their customer base later on. I love this idea, but others aren’t so sure.

A recent article in Vox by Matthew Yglesias called the idea “terrible.” Matthew claims that you are incapable of selecting investments on your own. He says:

That’s because the problem with buying and selling shares of stock has very little to do with brokerage fees. The problem is that you are not very good at picking which stocks to buy and sell. You do not have the level of investment skill necessary to beat the accumulated research departments and trading algorithms of all the time investment banks and hedge funds.”
Matthew Yglesias

I guess Matthew believes that the only thing holding back 300 million Americans from trading like they play Candy Crush is $6.95. This piece is half complete. It would be better if Yglesias addressed the opportunity Robin Hood provides those of us non-hedge fund investors who do know what we’re doing. Zero dollar brokerage is the first step to a more engaged investing public.

If we use Matthew’s definition of “you,” he’s right. Lumping every man, woman, child, and golden retriever who plays their hand at the market into one bucket makes for some uninspiring data. You’ve heard the “monkey throwing darts at a board” story. This is why most people are better off using low-cost ETFs or web-based financial advice products. “We,” as an investing public don’t have the knowledge, the time, or the discipline to invest.

Zero Dollar Brokerage

But for those of us who’ve taken the time to research companies and build portfolios thoughtfully, Robin Hood is a welcome development.

One of the main reasons “we” can’t beat the market is due to high, fixed fees. Not only brokerage fees, but the cost of placing our money in the trust of others, which is the alternative to doing it ourselves. In fact, Morningstar, the research house and data provider admitted that fees are a better predictor of future returns than their own research. Removing fees from the equation offers more in returns to investors who know what they’re doing.

The backdrop to Matthew’s piece is that it’s to complicated to invest, too hard, and we’re too stupid to do it. That’s sad. And it’s exactly the type of message that drives people away from taking ownership of their 401ks, pensions, superannuation, etc. Early-stage financial education and a long-term approach combine to make high quality portfolios. And the best portfolios are the simplest.

Is the investing public better off with artificial barriers to trading like commissions, or are we smart enough to figure out that rapidly buying and selling shares while racking up losses and capital gains tax is a truly, terrible idea?

Are we better off learning from our own bad investment ideas or handing over fees to a bank because it’s not even worth educating ourselves?

I like to think that Sharesight clients already know the answer to these.

My advice to the new investor would be to build an investment foundation with a few core ETFs, gaining the diversification that Matthew suggests, but then to join a stock club or subscribe to a well-known research provider. When you truly understand a company and are ready to buy shares, seek out the cheapest way to invest.

Xero Cashbook now available via Sharesight

We’re thrilled to announce that Xero Cashbook is now available as a bundled add-on with your Sharesight subscription.

Take a free (seriously no strings attached) 30 day trial by clicking the Xero button in the Plans & Billing page inside your Sharesight Investor or Expert plan. If you like what you see, you can continue using Cashbook for $15 per month.

This is an industry first. Individuals have never been able to access Xero directly without being invited by a professional intermediary. Until now. We’re the first Add-On Partner with the ability to offer Xero. We’re proud they chose us to partner with on the back of Sharesight being named Add-On Partner of the Year last month.

Xero Cashbook + Sharesight

What is Xero Cashbook?

Cashbook is a cut-down version of Xero Partner Edition (the product sold to accountants), but with the same core features. With Cashbook you can track all of your bank accounts, credit cards, term deposits, even your broker-linked cash accounts and margin loans. It’s probably the best cash-tracking product in the world. You can run reports, share access with your accountant or financial adviser, and connect to the Add-Ons in their app store.

Why do I need it?

Cashbook is the ultimate personal finance tool (in fact, it’s so good, small businesses use it too). Once you’ve added your bank accounts, Xero will track all of your incoming cash and outgoing expenses. This makes bank reconciliation a one-click process. Once you’ve built up some history, Xero will even begin to suggest auto-reconciliations. All of this can be done on their mobile app too (you’ve probably seen their ads at the bus stop).

And Sharesight will send your trades and dividends through to Xero in real-time, including number of units traded, execution price, brokerage fees, and details such as franking credits and tax withheld. This means that your investment portfolios are now part of your overall budget and total wealth picture, automatically.

Once you have Xero and Sharesight connected you can also pull your cash data back into Sharesight. This is a great way to track cash investments inside your Sharesight portfolios.

Now your household P&L, balance sheet, and cash flow can be run on the fly, across any date range. Seeing salary alongside dividends received and interest earned is awesome. So is tracking brokerage fees, and capital gains and losses.

When you share access with your accountant or financial adviser all of the admin work is done. We have a number of clients doing just this for their Self Managed Super Funds too.

Why are we selling it?

Because it’s awesome and we’re never going to build an accounting application. And because we’re building an app store of our own for investors. To date we’ve added brokers, a online financial adviser, and an accounting application. More to be announced soon…

We’ll continue focusing on investing while Xero focuses on accounting. You’ve heard us bang on before about the power of connected applications. You can do so much more across a few tabs in your browser than with one thinly-spread software solution. Xero helped define this concept, which runs counter to vertically integrated, walled-garden financial service providers.

Now you have a free opportunity to see what we’re talking about.

Xero Award Winners Roundtable

Recently, we were invited to participate in a Xero Award Winners roundtable by Add-On Success. Hear from us and the other Xero Add-On winners: Receipt Bank, Float, Crowe Horwath, CFM Bookkeeping, Twomeys, 5Ways Group, and Wealth Enhancers in the video below. The discussion was a refreshing, free-flowing chat, and a rare opportunity to hear not only from Add-On partners, but also from professional firms using Xero.

Sharesight Xero Award Winner 2014

We’ll let you come up with your own takeaways, but for us the overriding theme was “just do it.” In the case of the Add-Ons, your product will never be 100% finished. Nor will ever be perfect. Instead of waiting for the perfect opportunity or for your product to catch up to the market, just get it out there and iterate based on client feedback.

Surprisingly, the accounting and bookkeeping firms had similar advice for businesses thinking about moving into the cloud. They indicated that the automation gained from using Xero and the Add-Ons far outweighed the cost of remaining offline – even throughout a transition period. This is something we explain to prospective Sharesight Pro clients all the time. Changing to a new process can be difficult, but try to measure the automation gained from an application like Sharesight versus the old, offline method in terms of billable hours wasted.

Clients, have your say

I’m Lulu Ye, Sharesight’s new Client Experience Specialist.

Two months ago, I was introduced to this role by a happy Sharesight customer. A month ago, I joined the company, looking to add new thoughts and more customer focus. The past month was filled with learning – about the product and about our customers, with the highlight certainly being attending my first Xerocon, and receiving the Xero Add-on Partner of The Year award with the team.

In my previous role within finance and customer relations, I heard grumbles every day both within and outside of the organisation, especially when well-intended customer-oriented changes took forever to surface due to bureaucracy. In contrast, when I first visited Sharesight, I saw a bunch of creative and energetic minds, who can’t help but love new technology, and who are eager to bring disruptive changes to the market.

This is what brings a company forward – Change. Embarking on new business partnerships and introducing handy new features that push our business forward (compared to ticking off a daily task list). For the same reason, we feel compelled to bring exciting changes into the way we interact with YOU, our customers. In the coming months, I’ll be assisting you with any of your queries, gathering more insights, and re-organising our help website and community forum. And for our Professional clients, I look forward to chatting with you on our soon-to-be announced regular training webinars!

Have a fantastic idea? Want to share your experience? Click here to have your say. All ideas are welcome.

New Feature: Charting Improvements

We have some exciting Sharesight enhancements in the works regarding portfolio analytics (includes benchmarking!). Now, in order to lay some of the groundwork we’ve made some big improvements to the charting feature on the Portfolio Overview page, which are now available.

First, your holdings are now split out by the market they belong to. Each colour corresponds to the ASX, NZX, NYSE, LSE, and so forth. If you move your mouse across the chat, you’ll see crosshairs, which display a date, a total portfolio value, and the commensurate values for  each market.

Just below the chart, you’ll also notice a colour key. If you click on a market, it will be hidden from your chart dynamically. This is a handy way to isolate holdings from a particular market.

We’ve also introduced a line charting option. Again, this is in preparation for a few more features down the track (line charts being more flexible than area charts for plotting disparate investment types).

 

 

And don’t forget about the growth chart either. This one is our favourite as it shows the contribution (or detraction) of capital gains/losses, dividends, and currency. Expect lots more in the way of portfolio decomposition in the future!