12/28/98 - JACK WHITE & CO. offers flat fee mutual fund trading for $24 on-line and $27 over the phone.
12/27/98 - Note: Fidelity Investments offers short term trading of their funds for 0.5% per trade in both IRA and non-IRA status accounts. This is a great way to start trading with funds amounting to less than about $5000. After you exceed $5000, it becomes cheaper to trade the flat fee service via Jack whilte noted above.
[Note: it has come to my attention that Jack White & Co. no longer offers the ASM fund for unrestricted market timing. I called and verified that they stopped doing this some time in 1997. If anyone is aware of a mutual fund broker that offers an unrestricted market timing fund, please send an e-mail with the information. The best way around this is to trade somwhere like the RYDEX family of funds or the PROFUNDS family of funds. If you invest directly with these groups, and have the minimum invested, then you can trade COMMISSION FREE.]
In a nushell: To trade tax free AND commission free, trade inside your 401K or IRA. To trade commision free OUTSIDE your 401K or IRA, trade a fund like the ASM fund that Jack White and Co. offers. For details....READ ON!
FREE TRADING: Many 401K's and IRA's now allow you to move freely within and between different assett classes in the form of their mutual funds. This allows one to trade without taxes or commisions, the perfect environment for the beginning trader who wants to trade with as little as a few thousand dollars.
I have been able to trade the ASM (DJIA) Fund through Jack White & co. without commission and NO HOLDING PERIOD. There have been no restrictions on trading this fund for as long as I've used it. If the contact tells you there is a commission, ask them to check, as many don't realize that it has no restrictions and no fee. The other funds can be traded commission free also, but you must hold them for a minimum period that varies from fund to fund.
To trade mutual funds you will need to find a deep discount mutual fund broker (not the same as a stock broker). I am not affiliated with no do I endorse any particular broker, however the following is one I have used and they seem to be quite good, with low commissions. 1-800-323-3263 JACK WHITE & CO.
Outside in the 'real world' you would need at least $10,000 dollars, and that is cutting it close depending on the cost for transactions and your tax situation.
CALL AND ASK ABOUT 'ASSETT REALLOCATION' RESTRICTIONS AT YOUR INSTITUTION: If you are contributing to one of these plans, you should first call and verify that there are no restrictions in this regard, but generally the major mutual fund families do not have restrictions any more, especially if you are restricting the capital transfers to their funds. You may find that you can even transfer between different fund families and even individual stock, especially your own company's stock. Once you have determined that there are no 'trading' restrictions (I would not refer to it as such when talking with them, nor would I inform them that you intend to be moving money about on a weekly basis; simply ask them about the limitations on the frequency of 'assett reallocation' or something along those lines) then you must select your trading 'vehicles', as it were. If there are restrictions then either shift to another fund family if you are dealing with an IRA (you can 'roll over' money and not incurr penalties but you should talk with your a good accountant and/or attorney to make sure you execute this transfer correctly) or consider a deep discount broker (see below).
IDENTIFY YOUR TWO TRADING VEHICLES: These will consist of two funds; a pure money market fund, and a pure stock fund..
VEHICLE #1, THE STOCK FUND: First, you want a stock fund that is 'pure' or as close to it as possible. By that one means a stock fund that is undiluted with bonds and/or cash. Second, you want a fund that has high correlation with the model you are following. The Wilshire 5000 index is essentially the same as the NYSE index and the SP500 indext with regard to market movement, its movement would correlate highly with an any fund for those indexes. Chances are the only index fund found in your IRA or 401K will be an SP500 index fund. One can also trade pure stock funds as a proxy for the market movement, but you do so at your own risk, and you should evaluate the correlation with historical market data and/or paper trade, to evaluate your likelihood of success. Beware confusing your markets with one another! The NASDAQ is, AMEX, and NYSE are all different stock exchanges, and while over many weeks, months and years, there is high correlation, over short time frames the correlation will fluctuate wildly...so know the difference! Same goes for the funds in your IRA and 401K: some will undoubtedly be NASDAQ (OTC) funds, some will be NYSE (none will likely be AMEX). Even within one exchange you need to think about correlations for your trading vehicle. The reason different funds and indexes exist is to give people different choices and views with regard to the stock market(s), and you should never assume that a fund is suitable...always test it on paper first!
VEHICLE #2, THE MONEY MARKET FUND: You need a place to park your money when you are not invested in vehicle #1. When you put money in a money market fund (MMF), it earns some interest due to very conservative investments, but is disconnected from the movements of the stock market. This is just a way of parking your cash between buy and sell points.
MAKING THE TRADE: Trading is done by switching between vehicle #1 and vehicle #2. To execute a 'buy' in anticipation of a market rise, one shifts assetts from the MMF to the stock fund, and to execute a 'sell' in anticipation of a market decline, one shifts assetts from the stock fund to the MMF.
TRADING IN THE REAL WORLD: If you can't or don't wish to trade in the above setting, use a deep discount broker that allows you to trade frequently at low cost. Jack White and Co. out of California is one example, but there are many others. Jack White offers trading of mutual funds with NO commisions for at least one fund, the DOW30 ASM fund. The DJIA is not a bad trading vehicle, but don't forget that it is an index made up of only 30 stocks, and as such there will be times of low correlation with the 'broader' market, as it is called (e.g. the NYSE as a whole). SPDR's (sp500 depository receipts or 'spiders') are good for taking INTRADAY POSITIONS. Let's say you are going to buy on a given day anyway, but some really 'scary' news causes the market to sell off sharply. You decide the market has overreacted and the news should be ignored (e.g. 'Russian missles headed for NY city, film at 11pm...') and want to buy now because your gut tells you the close will be much higher...use the spiders. SPDR's cost about 1/10th the value of the SP500 futures contract and they are not as complicated or costly to trade.