BUYandHOLD.com Securities

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BUYandHOLD, Sharebuilder, FolioFN, Mutual Fund???

Jan 12, 2004 (Updated Jan 12, 2004)
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Pros:Discount broker, Dollar-based investing, ETFs, Bonds, Money Markets

Cons:Only cost-effective if you are investing at least $349.50 or more each month

The Bottom Line: Not for small investors because not cost-effective.


I have held an account with BUYandHOLD since May 2001, and I have since recommended to my brother, who now also has a BUYandHOLD account.


BUYandHOLD

Officially launched in November of 1999 as a privately held retail brokerage, BUYandHOLD Securities pioneered the use of unique dollar-based equity trades that revolutionized online investing by providing dollar-based investing (ShareBuilder.com and FolioFN.com have since emerged as its major competitors). Within two years of it inception, BUYandHOLD ranked as the 10th largest online brokerage by number of customer accounts, and as 2nd largest for the average annual number of trades per account, according to Salomon Smith Barney Equity Research. The next year, BUYandHOLD was bought by Freedom Investments, Inc., the wholly owned subsidiary and online discount brokerage wing of Oppenheimer Holdings Inc. Oppenheimer Holdings is the seventh largest independent full service securities firm in the United States in terms of retail registered representatives (financial advisors) - not to be confused with OppenheimerFunds Distributor, Inc. (whose logo is four interconnected hands), a mutual fund company majority owned by Massachusetts Mutual Life Insurance.

Dollar-based investing allows you to buy partial shares of stock, so you don't have to worry about saving up until you have enough to buy whole shares. Before dollar-based investing, you had to buy whole shares of stock in companies. With dollar-based investing, you can buy stock in whatever dollar amounts you would like - regardless of what fraction of a share that is. For example, say you only had $60 to invest and you want to buy stock in IBM, Walmart, and General Motors. Since each of these companies is currently trading for over $50.00, you could only afford to buy stock in one of the three companies. However, with dollar-based investing, you simply decide to put $20 into each company, and in return you receive the appropriate percentage of a share that you paid for in each company.

BUYandHOLD (and its competitors Sharebuilder and FolioFN) are able to offer dollar-based investing, as well as the lowest rates of any online broker, by pooling investors' money, making bulk purchases at set buying windows, and then splitting the shares up to their rightful owners. BUYandHOLD's utilizes 3 buying windows each trading day: 10:00AM, 12:30PM, and 3:00PM. Obviously, as other reviewers have pointed out, BUYandHOLD (as its name implies) it not for those who are trying to time the market with limit orders and real-time transactions - otherwise, BUYandHOLD would be called BUY-LOW-SELL-HIGH. However, for those who absolutely must sell or buy right away, BUYandHOLD does offer real-time trades for an expensive price similar to that of the brokers utilized by day-traders.

Like your bank is insured by the FDIC, BUYandHOLD is secured by the Securities Investor Protection Corporation (SIPC). This means that if BUYandHOLD folds, the money you have invested through it is protected up to $500,000 ($100,000 of which covers cash balances).

BUYandHOLD currently offers over 4,100 companies listed on the NASDAQ, AMEX, and NYSE. I don't know how limited of a number this is, but I know that of the 16 most valuable publicly-traded companies that are headquartered in Louisiana, BUYandHOLD offers all of them except for 4. Whenever I compile a list of companies that I am interested in investing in, I make sure BUYandHOLD carries each company before doing any in-depth analysis. For example, a few days ago I put together a list of about twenty companies that I wanted to evaluate, which included an airline based in Chile, a gold mine based in Peru, and a small company in Georgia that makes fishing boats. The only company on my list had that BUYandHOLD didn't offer was a small Nashville-based company that sells automobile insurance throughout the South. I emailed BUYandHOLD and asked them why they didn't have the company, and they said because the trading volumes for the company were too low. To see the list of companies offered by BUYandHOLD, go to its homepage and click on "Full List of Available Stocks."

Other securities that BUYandHOLD offers include over 60 ETFs (Exchange-Traded Funds), which are basically the same thing as index funds. Examples include the standard American indexes (S&P 500, Russell 2000, etc.), standard sector indexes (Healthcare, Technology, etc.), and even foreign indexes (England, Japan, etc.). In addition, BUYandHOLD offers six versions of Treasury Bond funds and five closed-end bond funds.

BUYandHOLD also offers 3 money markets (regular, government, and tax-exempt) for you to keep your money in when you don't have it invested in stocks or bond funds. That means your money is never lying idle; it is always earning interest. These 3 money markets (managed by Federated Investors) would normally require a minimum deposit of $10,000, just like most money market require opening minimums of thousands of dollars. However, BUYandHOLD has a deal with Federated Investors that allows BUYandHOLD account holders to enjoy the benefits of the 3 money markets without having to pay any minimum at all.

As for BUYandHOLD's website, I only use it for three things: 1) to see if BUYandHOLD offers the stock I am interested in, 2) to place my orders to buy/sell securities, and 3) to check my balance. I have never even thought to use BUYandHOLD's website to research stocks (although I do occasionally enjoy browsing the "Top Ten Holding" lists). From the beginning, I have always primarily relied on MoneyCentral.MSN.com, Quicken.com, and Morningstar.com for stock research. Likewise, I have never used BUYandHOLD's website to monitor how well my stocks are doing. From the beginning I have used Microsoft Money.

Finally, reading the other reviews reminded me of a few things. BUYandHOLD does not mail paper statements to you, only electronic statements via email. This suits me, be I prefer to store them in electronically rather than in some binder on my bookshelf. Also, a few reviewers said they had problems closing out their accounts with BUYandHOLD. I once accidentally created a second account, and I had no problem getting it closed immediately without paying any fees. In addition, my friend closed out his entire BUYandHOLD account to purchase a new vehicle, and he didn't have any problems. There were also several reviewers that complained about the customer service at BUYandHOLD. I have never once had a problem. The few times I have called BUYandHOLD, they helped me out very quickly.


My Recommendation

BUYandHOLD is not for small investors. BUYandHOLD only offers two plans: 1) a $6.99/month plan that includes two monthly transactions ($2.99 for any additional transaction) and 2) $14.99/month plan that include unlimited transactions. There is no way of getting around the $6.99 monthly fee, even if you don't trade. As one of the other reviewers who helped his daughter buy $500 worth of stock via BUYandHOLD pointed out: "[with] a $6.99 per month service [charge]. . . At $84 off the top per year, her $500 is going to disappear quickly."

You should never allow your trading cost to exceed 2% of your total transaction because you would be better off giving your money to a professional mutual fund manager and paying him his customary 2% cut for picking your stocks for you. Because of the $6.99 monthly minimum at BUYandHOLD, you would need to commit to investing at least $349.50 each and every month to make sure that your costs do not exceed the 2% ceiling (2% of $349.50 = $6.99).

BUYandHOLD's competitors, Sharebuilder or FOLIOfn, both offer plans with no monthly subscription fee in which it only costs $4 per transaction. That would appear to mean that all you have to commit to is investing no less than $200 at a time to make sure that your costs do not exceed the 2% ceiling (2% of $200 = $4). If you can't come up with $200 each month, just save up until you get it, and then make the transaction. Since you aren't paying a monthly fee, you don't have to invest every month. However, read their websites carefully. The huge disadvantage to Sharebuilder is that it only allows you to sell stocks in real time and it costs you $15.95. The huge disadvantage to FOLIOfn is that it charges you a $14.95 "Account Maintenance Fee" per quarter if you do not complete 4 or more trades during that quarter. Therefore, you have to take this into consideration to see if it is cost effective for you (i.e. keeps your transaction costs at 2% or less).

If you are a small investor, your best bet is to select one of the thousands of mutual funds out there. Just like you can use MoneyCentral.MSN.com or Morningstar.com to screen stocks, you can use them to screen mutual funds. They are many mutual funds that have minimum deposits of $500. You can use Morningstar.com's Mutual Fund Screener to create a list of all the mutual funds that have minimum initial purchases less than or equal to $500. If that is too much money, then pick between the thousands of corporations that offer you the ability to buy their stock through dividend reinvestment plans or direct stock purchase plans. Go to DripCentral.com to find a directory of websites of companies that offer dividend reinvestment plans or direct stock purchase plans. Ironically, one of the best is Netstockdirect.com, who owns Sharebuilder.


Recommend this product? Yes

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