dollar cost averaging, ETFs, mutual funds and QQQQ

Tags: investing, finance, saving, retirement planning, dollar cost averaging, allocation strategy.

I'm in a bit of a quandry. The recent article in Smart Money got me thinking about commissions and fees. It discusses NASDAQ's new QQQQ program (QQQDirect) that allows customers to dollar cost average into their nasdaq 100 etf for free (though sales are at $12.99 each).

My investment style is very much one of dollar cost averaging over time, however, my tax preference is to avoid annual capital gains by investing in ETFs over mutual funds.
I will probably make two -four trades each month and paying brokerage fees to First Trade at $6.95 per trade. That comes to $13.90 to $27.80 per month. Ultimately, I would like to push the number of commissioned trade down to 1 per month (total $6.95).

I've read that sharebouilder allows 20 trades at $20 per month, which, depending upon how I average things out will either save or cost me money. Also, I'll have yet another brokerage to deal with (I've been trying to simplify and consolidate).

I think I'll have a higher trade volume for the next 6 months, as I'm just beginning the ETF strategy and will need to invest in a variety of ETFs up front in order to build out a diversified portfolio. I'll publish my allocation plan in a future post hoping to receive comments. In the future, probably 8-12 months from now my subsequent purchases (most likely monthly) will hopefully be for 1 at most two ETFs and oriented toward re-balancing my portfolio by buying one or two of the out of favor indexes. Then again, if a particular index really taxes off, I will have to sell shares and that would also increase my transaction costs.

At the moment, we're not discussing large amounts, so I'll take my chances for the next year.

Regards, makingourway

For now, I'll keep with First Trade but would be curious to hear other people's thoughts on this issue.