For implementing Tactical Portfolio Recipes (which have "t." in their ID) and Strategic Portfolio Recipe (which have "s." in their ID) choose a brokerage that has 1) low trading fees to reduce the rebalancing cost 2) an easy-to-use trading interface to save time.
Financial advisors usually have separate software or an advisor-only trading interface that allows quick portfolio rebalancing.
For do-it-yourself investors, we describe below three types of brokerages that can work with Portfolio Recipes. If would like to suggest an additional solution for implementing Portfolio Recipes, please contact us.
1. Portfolio Brokerage
We use the term "Portfolio Brokerage" for a broker that provides an online tool which allows rebalancing your entire portfolio based on percentage allocations. We like FolioInvesting.com for easy investing and rebalancing with Portfolio Recipes. FolioInvesting.com offers the following features that, as a group, are unmatched by other brokerages:
- Unlimited trades for a flat, annual fee. This saves money since you can rebalance as often as you need at no extra cost. They use a "window trade" system whereby trades are executed twice per day, but you can also place market orders for an extra fee. Their Unlimited Plan is $290 per year.
- Automated portfolio rebalancing tool. This saves time and prevents errors since it's just a few clicks to update your portfolio's composition.
- Buy and sell fractional shares of ETFs. This saves having to round to the nearest whole share. This allows you to follow a Portfolio Recipe's percentage allocation more closely.
- Rebalance portfolios using percentages. This saves having to translate from a target percentage to a target dollar amount, then to a target share amount.
Brokerage Feature & Cost Comparison
The chart below compares costs at FolioInvesting, Schwab, Vanguard, Fidelity, and TD Ameritrade.
The brokerages, such as Charles Schwab, Vanguard, and Fidelity have per-trade fees under $10, have a selection of no-fee exchange-traded funds, and have a mutual fund "supermarket."
Using No-Transaction Fee ETFs
One approach to keeping costs low at a Discount Broker is to use their no-transaction fee (NTF) ETFs. Many of the Tactical Portfolio Recipes (i.e., those recipes with an ID starting with "t.") are created using specific ETFs, such as EEM, that may have a transaction fee. FolioInvesting's Unlimited Plan gets rid of those fees, but if you're using a Discount Broker like Schwab, Vanguard, or Fidelity you have another option.
You may substitute no-transaction fee ETFs for the ones specified in the Portfolio Recipe. This is analogous to substituting margarine for butter (or vice versa) in a recipe... it won't be exactly the same, but it could be close. See the table below, "How to Use No-Transaction Fee ETFs with Tactical Portfolio Recipes"
How to Use No-Transaction Fee ETFs with Tactical Portfolio Recipes
These brokers offer low-cost or zero-cost trades. These brokerages have per-trade fees at $5 or less.