Sharebuilder’s Service Is Good For Investors

Dec.30, 2007 in Market Outlook

A few months ago, I clicked through on one of those advertisements from another site and then posted here asking other readers if they had any personal experience with the site/service. I received five positive and no negative comments.

I decided to allocate a small amount of money each month and sign up for Sharebuilder to run an experiment using their program investing in a few recommended tech stocks. Above is a screenshot showing the overall percentage result of this portfolio. Sorry, I’ve removed the actual money invested but I may share the actual dollar figures after a year or so has gone by so that folks can see in fact that my investment outlay has been minimal and that enough time has passed to fairly judge the return of the investments over time. I’ve gotten on a cycle and dilligently invested once a month the same amount. To date, 80% of the funds allocated have gone to primarily well known tech stocks and 20% to a low risk money market account. I’m doing the 20% so that even if the stocks completely tank, I’ll have some money left. Nobody likes to lose it all.

The neat thing about Sharebuilder is that one can, indeed, invest as little as a few dollars (although admittedly I haven’t tried the smallest advertised amount of $4) so you can buy small parts of a stock instead of full shares. This means one could own a small slice of GOOGle for less than the price of taking a loved one to see Star Wars Revenge of the Sith in the theater.

Our traditional broker requires minimum stock trades of a lot more dollars than this. The catch? Surely, there’s a catch somewhere, right? That’s what I figured too. Here’s how it works:

In order to make those $4 trades you would need to pay $4 fee per investment or pay for one of their monthly plans (plans shown below, current as of this post, but subject to change, so consult Sharebuilder directly for actual figures):

If you choose say the $12/month plan then you would be able t make 6 trades as part of your monthly plan fee (and each additional trade beyond six would cost $2 each). Therefore, under this plan you could essentially make six $4 trades each month or whatever cycle you want to choose. You could buy one stock each week and that would be four or five trades for the month depending on the number of Tuesdays. Divide the six trades into $12 and that works out to $2 per trade.

If you invested $10 then that’s a 20% fee. If you invested $100 then that’s a 2% fee. Before thinking this is too pricey, consider the last time you pulled money out of an ATM and had to pay for that privilege (that’s more outrageous, IMO). Probably paid $1-2.50 there for pulling out your own money. The fees here work out to be very similar.

Sharebuilder also offers a premium $20/month plan that gives investors up to 20 trades a month at a $1 a trade, which lowers the percentage to 10% on the $10 investment or 1% on a $100 investment. It’s all relative. 20 trades is a lot though if one is just starting out investing.

The new or first time investor would probably be better off with the 6 trade program at $12/month and choosing a few stocks that they feel have strong earnings potential. Heck, if it’s a husband/wife team then each can choose 3 stocks to purchase each month and then make a friendly competition out of who does better. Marriage and competition, gotta love that!

Now, just paying the $12/month and not investing would be a bad investment in and of itself, so if one is reading this and signs up, then make a committment to invest in something, whatever the amount is and do it consistently every week or month so that the 12 bones is not going down the proverbial rathole.

It’s not just the $12, though, one would be looking at in the budget. If making say six $5 investments every month then that would be $30/month. So the total investment cost each month would be $42 USD ($12 /month for the plan + 6 investments x $5 = 30 for a total of $42). So it is quite possible to make six stock investments for under $50 a month which is the standard minimum figure to buy into most automatic investment plans (mutual funds often start out at this figure with many large brokerage firms).

It can be an automatic investment like I am doing or you can pick and choose what week on Tuesday you want to invest — though you are stuck with not knowing the exact price you will pay on the Tuesday that the trade is actually made as Ter explains:

Yeah, the reason it’s four bucks is that it’s not a real-time trade, but is made at some point each Tuesday. So you can’t predict exactly what you will pay. It’s a lot like direct reinvestment plans, where you are buying in dollar amount, not share numbers.

Guess the major question is if I was losing 20% instead of being ahead 20% would I be as happy with the service? I wouldn’t be happy about losing the money, no, but it’s not Sharebuilder that is determining the percentage gained or loss, it’s the investments I have chosen. As with anything else, an investor has to choose wisely.

I decided to invest in the stocks S&P Equity research had put a “buy” rating on in March of this year. I only invested in ValueClick (VCLK) one month and as you can see above, it has been the only underperformer in the portfolio. The second month I replaced ValueClick with one stock that they didn’t recommend: Apple, which has done ok so far. I’m holding onto ValueClick and might buy more again someday. Upon closer inspection, though, I saw Commission Junction (CJ) is one of their businesses and I’m not a CJ fan, so maybe not.

If you had bought these same stocks and invested at the same week I did March, April and May, you’d have the same returns shown above. Yeah, it’s only three months and three months from now it could be -20% or worse, that’s the way it goes.

Nobody likes losing money, but I consider this money spent as sort of an online gambling fund of sorts. Therefore, I’m willing to risk losing a large portion of it, and maybe even all of it (though the chance of that happening with the chosen stocks is very small). That’s the attitude, IMO, that one has to have with these type of higher risk investments. The stock market can be very, very risky and I sure wouldn’t trust having too much money there. I don’t put my eggs all in one basket as an investor and neither should anybody else. But, for an experiment, perhaps even a very fun, educational one, Sharebuilder could be the ticket.

Disclaimer: certainly Sharebuilder shouldn’t be anybody’s only investment channel, just as it far and away isn’t mine nor should anything I’ve written here be construed as investment advice. Also, I do make a few bucks if you sign up for Sharebuilder by clicking one of these ads and investing a few dollars so keep that in mind. Although, I am paying for and using this service myself every month, so that makes me at the very least an informed shill

When it comes time to sell the stocks one has purchased those trades are, again, real time and will incur the real time fees according to the plan shown above, which can make the commission structure higher. The idea with saving though is to do exactly that: save. It’s difficult to make money if one is constantly moving money around and having gains being devoured by commission fees. And the convenience of a savings account can also be its undoing when one needs a few extra bucks. Those real time commission fees might be just the deterrent one needs to stay away from selling and withdrawing the funds for a probably unnecessary expenditure.

With all this said, if someone reading this wants to dip a toe in with a small amount of money I can personally say that this service is one possible good place to start. I was definitely a little bit concerned and skeptical initially because you have to be careful when it comes to money, but those fears are gone; the service has been solid — at least on the buying end — for me so far. Since I haven’t sold any of my investments I cannot speak to that experience yet. I will write when I have sold the stocks and withdrawn the money, but I suspect that will not be for quite some time.

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