Yellowstone Financial, Inc.

Grateful for These Financial Innovations

While I’m most grateful for the family and friends around the Thanksgiving table, the financial geek in me can’t help but to extend this gratitude to innovations in the last few years that have improved the quality of many lives. 

Free trading.  Charles Schwab in October dropped a bombshell on the brokerage industry with its offer of free online trading of stocks and exchange traded funds (ETFs).  Competitors TD Ameritrade and Fidelity soon followed suit, while Vanguard has had free trading with most ETFs for years.  It’s never been cheaper to build portfolios with diversified investments from different companies at a single custodian.  That’s not to say you can forget about costs all together.  Mutual fund trades can be as high as $50 and with many accounts you need to be careful your cash is invested in higher yielding money market funds.    

Lower cost ETFs and mutual funds.  Vanguard may have started the trend with its index funds, but now low cost funds are available from Schwab and other custodians.  Fidelity in the last year introduced four mutual funds with no expense at all that cover the US large companies, the US middle and small companies, the total US market, and international large companies.  While reaching zero expenses was an important milestone, mutual funds and ETFs have been available for years for under a dollar a year to invest a thousand. There’s little reason to spend more than 0.3 percent a year to invest your money. 

Guaranteed issue health insurance policies.  It wasn’t long ago that the biggest worry for early retirees was finding health insurance.  At least we have COBRA continuation policies that give access to 18 months of health insurance after leaving a company, albeit at a high price.  The real change came through the Affordable Care Act and the associated state health insurance exchanges, including Colorado’s.  Now you can go online to view several different health insurance policies that are available to everyone regardless of preexisting conditions.  What more, these policies are subsidized if your income is below 400 percent of the poverty line, which for a 60-year-old couple in Boulder County would be about $67,000 a year for 2020. 

Free internet checking and savings.  Do millennials remember a time when most would sit down twice a month to pay your bills with checks and stamps?  Internet bill pay has been around for a while, but now free checking with free ubiquitous ATM access and high interest savings has become commonplace.  Capital One and Ally were the pioneers, but you can do the same with Schwab and Fidelity.  The best accounts will even cover the ATM fees at banks around the world with no foreign transaction charges. 

Proliferation of Roth accounts.  When you think of Roth, you should think tax-free growth for the rest of your life.  Roth IRAs were first introduced in the 90s and have expanded with the advent of Roth retirement accounts including 403(b) and 401(k) contributions.  Some state and local government employees have additional Roth access through 457(b) plans.   Self-employed individuals can set up free Roth 401(k) accounts.  Some big companies with highly compensated employees such as Google, Facebook, IBM, Apple, and Microsoft reportedly allow after-tax contributions that can moved to tax-free Roth accounts within the plan.  Income limits for Roth conversions have been eliminated.  With tax rates at historic lows and annual trillion dollar federal deficits, having some assets in tax-free Roth accounts is a wise move for most.  They can even help you qualify for subsidized health insurance by giving you a tax-free source of funds in early retirement.