Commsec Pocket: Should you use it?

Commonwealth Bank has launched a new way to invest in ETF’s called Commsec Pocket.  ETF’s or exchange traded funds, are funds that are made up of hundreds of underlying stocks.  Shares in these funds are traded through the stock exchanges.  The advantage of ETF’s is you get to invest in a diverse(ish) portfolio of stocks in a single investment.   For retail investors, this has proven to be a more successful for many investors compared to trying to pick and choose individual stocks.

So before you download Commsec Pocket, make sure you read this review to see if it’s the right investment choice for you.

In this review, I’m comparing Commsec Pocket with Raiz as that’s the product Commonwealth Bank is looking to directly compete with.

The Fees

The $2 fee on Commsec pocket is probably the cheapest way to invest in Australian ETFs.

The big downside of using commsec pocket is the $2 fee every time you buy or sell through the platform.  While this is much lower than traditional brokerages, it’s really high for micro-investing.

  • If you were to invest $50 each week through commsec pocket, you’d end up paying over $100 in fees over the course of a year.
  • If you were to invest $50 each week through Raiz, you’d end up paying $30 over the course of a year in fees.

So while Commsec is designed to compete against products such as Raiz and Spaceship – you might end up losing more money investing through commsec pocket.

If you’re investing larger amounts each week, then it’s probably going to be more worthwhile for you.

It’s not really diversified

Even though each ETF is made up of hundreds of individual stocks, your portfolio will never be as diverse as a Raiz portfolio. The Raiz portfolios combine both stocks and bonds, and these are from different global markets.  While you could achieve a similar portfolio through Commsec Pocket, it will take a lot of money.  The beauty of Raiz is you can get access to this diverse portfolio with just $5.

The other advantage of Raiz is you can switch your portfolio at any time.  As you get older, you might care less about capital appreciation and more about capital preservation. And with Raiz you can easily make this switch.

It’s a good option for larger ETF purchases

If you’re looking to invest $500 at a time in less regular investments, then Commsec Pocket is a great choice.  Simply because you’ll pay just $2 buy fee (and then $2 when you sell).  This is known as lump sum investing.

This strategy is less effective over the long term.  For most young investors, investing small amounts at regular intervals works out better.  This is known as dollar cost averaging and is a tried and tested investing method.   The risk of making large investments at irregular intervals is that you’ll end up buying at the wrong time.  Trying to pick the right time to invest is fraught with danger and most retail investors end up losing money trying to time stock buys.

Should you use Commsec Pocket?

  • If you’re looking to invest $500+ at a time in ETFs then Commsec Pocket is a cost effective method of investing in some solid ETFs.
  • If you’re looking to invest small amounts of money on a weekly or monthly basis, then Commsec Pocket’s fees will make it a bad choice for you.
  • If you’re looking for an investment portfolio that has been put together by experts Commsec Pocket isn’t for you.  You are just investing in an index of stocks known as an ETF.  The stocks performance and future growth potential has not been considered.

Commsec Pocket Alternatives

If you’re looking to buy ETFs then here are couple of platforms that allow you to invest directly into ETFs:

  • Stake – Stake lets Australians invest in U.S stocks commission free.    They make money when you exchange AUD to USD through the app in the form a currency conversion fee.  It’s still a really cost effective way to invest in U.S stocks.
  • eToro – Just like Stake you can also invest in U.S stocks without commissions.    Pocket doesn’t allow you to buy fractional shares, but on eToro you can.  You can invest with as little as $50.

Personally I can’t see myself using Commsec Pocket.  I like to invest small amounts every week.  I do this through both Raiz and Spaceship.  And this investing style is much cheaper through these products.  I still love the idea behind Pocket.  I’m glad to see more products that encourage investing and hope other banks enter this space so we see more competition.

 

This post is for educational purposes and should not be considered as investment advice. This post is based on individual experience and journalistic research.

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