The little guy's chance to play the market
Written: Jan 19 '02 (Updated Jan 19 '02)
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Pros: No minimum initial deposit, allows small regular investments, and no maintenance fees
Cons: Invest too little each time and watch commissions eat away at your money.
The Bottom Line: For the beginning long term investor, it's a great way to build a solid portfolio out of almost nothing. Just save up at least a hundred bucks per buy.
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| eharri3's Full Review: Sharebuilder |
What kind of an investor are you? This is a question we all should ask ourselves if we're considering investing in the stock market. But it's especially important to understand your own investment style when picking a discount broker. They all have their different pros and cons depending on what your needs are. Are you a day trader? You want to look for low commissions. Are you a long term buy and hold investor? Look for low maintenance fees and avoid inactivity fees.
I'll come right out and say I've never seen much sense in day trading. Most people I know don't really consistently increase the overall value of their portfolio over time by doing it, and some actually loose money after you figure in all the commissions, fees, and taxes they pay out for moving their money around so much. But of course, investors' memories are notoriously short. If your portfolio was down 5 percent 6 months ago but then you made a 6 percent gain in day trading yesterday and made that 5 percent back plus another measley 1 percent, if you're like many investors you probably don't consider it just barely doing better than breaking even. You've probably already forgotten about loosing that 5 percent, so the 6 percent is just pure profit. And who cares about taxes anyway! Tax time is months away!
But to me, it all just seems like running on a treadmill with a big screen showing moving scenery in front of you to make you think you're making progress. I don't have time to monitor the markets that closely, and even if I did, I think jumping from stock to stock on the off chance of making a few cents per share of profit is very much akin to gambling. I cannot afford to be a gambler, and I definitely do not believe I or most other people can predict the day to day movements of the market with any consistent accuracy.
No sir, call me boring, but I tend to pick stock in quality companies that I think will survive and thrive for the long term and hold them until the fundamental factors that attracted me to them change in some way. Like most college students, I don't have 5000, 2500, or even 1000 dollars I can part with for 5 years or more, but I have 1-200 bucks per month I won't miss. And most importantly, I have all the time in the world to accumulate wealth slowly, so I see no point in trying to do it all over night. I have found in my research that holding quality companies for months or even years can double and in some case triple your money without all the stress and pitfalls of day trading.
This is why sharebuilder works for me. With no minimum initial investment, you can literally become an investor for a few dollars. Sharebuilder also allows you to invest using dollar cost averaging, meaning putting away a set amount of cash at a regular interval to buy whole and fractional shares instead of just ordering 20 shares of something and then multiplying the share price by number of shares to find the price you pay. You can choose to arrange automatic investments at monthly or weekly intervals or do one-time transactions yourself whenever you have the spare cash. By putting away small set amounts in a stock at regular intervals, you can decrease the average amount you pay for shares while investing without making a huge demand on your savings or exposing yourself to too much risk at one particular time. Consider it to be diversification over time as well as over different stocks and sectors of the market. Plus, stocks that some smaller investors normally find way too expensive to buy are brought within reach when you can buy fractions of a share.
Stock purchases and transaction fees are funded from the sharebuilder money market fund. You can transfer money into it in several convenient ways. If you find a stock you believe to be an incredible bargain and you just have to have the funds there to buy it at the end of the day, you can do a wire transfer. You can also do an electronic debit from a checking or savings account and have it processed on the next Friday or even arrange for electronic deposit from your employer. Or you can simply send them a check.
Are there cons to sharebuilder? Well that depends on your investment style. If you can't get at least 100 bucks or ideally 150-200 or more together for each stock purchase, wait until you can. In fact, if even that is too big of a demand on your income, you probably shouldn't be investing yet. Yes, sharebuilder is one of the cheapest places to start an investment portfolio around, but take the sharebuilder tag line, "Invest for pennies at a time", too seriously and at 4 dollars per buy and 15.95 per sell you could easily loose all profits and then some to fees. Put 24 bucks into a stock that sells for 20 bucks per share and your investment decreases to 20 dollars when the 4 dollar commission is taken out. Watch its price go up to 25, sell it, and pay the 15.95 back end commission, and you've paid 19 dollars in fees and made a 5 dollar profit on the principal. Investing with sharebuilder gets most cost efficient if you put in more than 100 dollars per transaction and avoid buying more than 2-3 stocks at once. Of course, as you build up equity in the market, the commissions become less and less important.
This site is not, repeat is not for day traders. Certain compromises are made to keep overhead down so they can charge such low commissions and avoid having to charge inactivity or maintenance fees. Those compromises result in a lack of the kind of flexibility a day trader needs to quickly take advantage of sudden fluctuations in stock prices. Many transactions are pooled and then done all at once on specific days. Rather than buying stocks every day, sharebuilder normally goes to the market every Tuesday with a shopping list of its customers' orders and buys stocks in bulk for 4 dollars per transaction. Unfortunately, the time of purchase for the Tuesday transactions is sometimes not consistent, so you may not get the stock at the lowest price of the day. Any funds transfers into your money market account take place the next Friday after the transfer is requested. Real time orders are available for $15.95, but from what I've heard they don't process with consistent speed. All sell orders are processed in real time. If you're one of those people for whom the few cents' change in share values that can take place in that critical minute or two that it takes to process your request makes a world of difference, sharebuilders is definitely not an option. If you're like me and like buying and holding quality stocks for the long term without worrying about a few cents' increase or decrease in value here and there, in all likelihood these things will not matter to you.
Sharebuilder offers very little research beyond quote charts and makes no recommendations for stocks whatsoever. So though you can buy through them, you'll probably have to put something like the Motley Fool or MSNBC next to them on your browser's list of favorite sites so you can do the research at one of those places and move right to sharebuilder when you're ready to start buying and selling.
Overall, when coupled with some good books and internet sites, sharebuilder is a convenient, easy way for those without large disposable income to get started in the stock market. It has its detractors, but I bet they couldn't name another discount broker that will allow people who otherwise couldn't afford to invest to begin to build their stock portfolios with 100 dollars or even less. In exchange for a cheap, convenient way to build up a stock portfolio that will shine in the long term, sharebuilder customers trade away some of the flexibility that can increase short-term gains. But hey, on the clock of life, long term investors don't think that what you've made by 9:30 or 12 noon matters... it's what you take home at the end of the day that counts. If you are the type to look further ahead and keep steadily buying into a quality company until its fundamentals change without paying attention to minute daily fluctuations of the market or of your company's price, you've found the right online broker. If your investment style changes once you've accumulated a good sized portfolio and learned a bit about investing, you can move your money to one of the bigger conventional brokerages. Of course there's a little matter of the 50 dollar fee they charge to wire your money to another broker and close your account. It's a mean spirited fee that many brokers charge, but hey, what will 50 bucks matter to you by that time?
Recommended:
Yes
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eharri3
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Member: edward harris
Location: Philadelphia, Pa
Reviews written: 198
Trusted by: 83 members
About Me:
Anybody notice all these bugs always pop up right when it's time to distribute earnings?
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