The Pros and Cons of Sharebuilder
Published on - December 6th, 2007 (Modified on - May 13th, 2008) (by J.D. Roth) Bill wrote the other day looking for my opinion on Sharebuilder. Sharebuilder is an online discount brokerage that encourages automatic scheduled purchases of stocks and exchange-traded funds. In plain English, the company makes it easy to start investing. Here’s what Bill had to say:
I was wondering what you thought about Sharebuilder. I am considering signing up for an Individual Retirement Account. I am not sure if Sharebuilder is a good place to start, or if I should try to get out of debt first (I have about $30,000 left and am paying it off). I have a 401K through my employer, so I have some retirement savings. I just don’t think I have enough saved for my current age, so I am looking to offset the 401K with some other investments. Anyway, do you like Sharebuilder?
I’ve been using Sharebuilder for almost two year now. I like it, but it’s not a good choice for everyone.
What does it cost?
Sharebuilder offers an easy, convenient way to begin investing, and is relatively inexpensive, but it is not free. It costs $4 to make a scheduled transaction. It costs $16 to make a market order (a trade that executes immediately).
While these fees are lower than those at most full-service brokers, they’re still fees. Many people would argue — and I can’t say they’re wrong — that if you want to start a Roth IRA and can afford it, you should save $1,000 or $3,000 (or whatever the minimum is) to open a no-fee account at Vanguard. Truth be told, I will eventually move my Roth IRA to Vanguard, though that’s still months (if not years) away.
Getting in the habit
Why did I choose Sharebuilder if I’m not 100% sold on them? Because they made it easy to get started.
I wanted to put $100/month into an IRA, but I didn’t have money to make a large initial investment. Sharebuilder is designed precisely for cases like mine. I created a recurring automated transaction, and I was “paying myself first” in no time. But I was paying 4% to do this — $4 for every $100 investment — a number that would make some people faint.
Eventually I cancelled my monthly program. I now make one-time lump investments of $1,000 each, which means the $4 fee doesn’t consume as much of my money. In reality, the $4 fee never bothered me. It was a small price to develop the investment habit.
Another option
Here’s my current recommendation for someone who wishes to save for retirement, but who can only afford small amounts to start:
- Open a high-yield savings account at ING Direct (or your favorite equivalent).
- Schedule a monthly transfer to your new account. $100 is a good amount, but you might choose $25 or $250. Become accustomed to making regular investments while earning interest on the money and paying no fees.
- In the meantime, research possible locations for your IRA. As I mentioned before, Vanguard is an excellent choice, though you might consider Fidelity or T. Rowe Price. (Read my post about how to start a Roth IRA (and where to do it).
- When you’ve saved enough for the minimum investment, transfer the money from ING Direct to Vanguard (or whichever place you choose).
This is a terrific way to start investing.
Do what works for you
Zecco is another alternative to Sharebuilder. I’m not sure what automatic investment options Zecco provides, but they do offer $0 trades. If I were beginning right now, I’d take a look at them.
Obviously, there are other choices out there. Your best bet is to do research to find the one that is right for you. If you don’t like the idea of paying investment fees, then save to open a Vanguard account. If you feel it’s important to just get started, consider Sharebuilder.
Final notes
Bill is to be commended for striving to become debt-free. I think it’s okay to do a little retirement investing as he pursues this goal. (That’s what I did.) But remember: repaying debt is the best investment. Finally, before starting an IRA, be sure to take full advantage of the employer match on your 401k. Always take the free money!
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I am not a US citizen and a newbie in investment. I wonder which site is best to start investing for non-US citizen living outside US.
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Reiterating and supplementing Nikki’s commnent:
ING Direct purchase of Sharebuilder has lead to reduced trading fees for both market and limit orders: $9.95 which is less that TD Ameritrade (9.99) and much less than the big boys like Vanguard, Schwab, etc.
The merger also makes mutual funds available to Sharebuilder customers and Stocks/ETFs available to ING Direct customers.
I have held a Roth and Taxable account at Sharebuilder since early 2005. My only complaints have been the higher real-time trading costs (resolved by ING acquisition) and the $25 annual fee for the advertised no-fee IRA. There are some ways around this fee, most notably signing up for an expanded investment plan (6 buys for $12 or 12 buys for $20) during the renewal month for the IRA. Renewals are January or June depending on when the first account was opened. Signing up for the expanded plan in a taxable account counts toward eliminating the IRA fee.
I agree with the general sentiment that the expanded investment plans are not a particularly good deal unless you have big bucks to invest. On the other hand, switching the plan off and on is simple and there are times (like now when the overall market is down) where the reduced per buy cost can be used for effective dollar cost averaging. For example, suppose you have $300 in the money market. You could by one stock/ETF for $296 plus $4 buy fee OR you could buy two stocks/ETFs three times in a month for a total of $144 plus $6 buy fee for each security. Obviously the second option is more “expensive” but with dollar cost averaging you could end up with more shares.
Sharebuilder offers partial shares and free DRIP investing (not universal in the discount brokerage world), a decent Money Market fund right out of the gate (at TD Ameritrade, you have to ask and do tons of paperwork to get past their standard 1% account), ACH funding and withdrawals, and one-click changes for DRIPs, Investing Plans, etc.
I am planning to transfer my Roth since I have enough bucks at TD Ameritrade to get some extra perks. (I’ve also started limited Roth conversions since I quit my job: no income = no taxes! I want to combine these accounts for basic management purposes.)
With some attention, Sharebuilder is fine for an IRA, particularly in the early stages when balances are low. For a taxable account, I think it is pretty hard to beat with the new lowered trading fees. After almost three years, I have had zero problems.
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The important things to understand about Sharebuilder are:
They are the only brokerage firm I know of that lets you buy fractional shares of stock, or in other words, dollar amounts of stock. Sometimes I have only $50 to $75 to invest in a given month. Sharebuilder lets me put that money to work in stocks right away. The $4 commission doesn’t bother me that much — it’s about the cost of a latte.
The Basic account has NO monthly fees.
Sharebuilder offers a credit card that will automatically pay the 1% reward money directly into your Sharebuilder account. I use it for all my day-to-day purchases and pay it off every month.
Sharebuilder is perfect for someone like me who wants/needs to invest with small amounts of money. I buy only dividend-paying stocks, reinvest all dividends and have a buy and hold strategy. I kind of think this is the essence of Sharebuilder — after all, what does their name imply?
Sharebuilder is probably not for people who buy and sell shares often, or who are looking to profit from share price appreciation alone.
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I’m hesitant to subscribe to ShareBuilder, or buy stocks in general. i have about 1K in a Roth Ira with Van kempen… should I move it to Vanguard ?(this blog seems to have many fans).
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Here is an idea if you sign up for the Advantage plan at Sharebuilder it cost $20.00 per month. With that you get 20 free trades. That’s $1.00 per trade. Don’t place market orders, set your account for automatic investing once per month. In the interim you can make regular deposits, say $100.00/week into their money market account at 2% interest that is paid out at the end of the month you would make about $8.00 per month… so then the account would only cost you $12.00 per month. With the advantage plan it gives you full access to company stock grades as well as their past performance. It gives the investor plenty of opporitunities to make very well informed decisions and allows them to have the control over their investments, unlike a 401k where you are forced to buy whatever stock the 401k company invests your money in. This way, you are in control of your finances and, if you need the money you can get to it in a relatively short time frame. So, for the long term investor who can only put $100/week aside for investing I feel it is a very worth while product that is on the market. I’ve just started with it and I already have made significant investments on stocks with B- to A grades that are paying decent dividends and the prices are reasonable, so, it allows me to by a lot more shares than if I had my money in a 401k. Plus, if you have children and aren’t making a whole lot of money, you could use your child credits to pay any taxes you may have to pay on the money you make. If you’re an idependent student you can use your lifelong learning credit. If you got a bachlors degree that could be a significant savings to help pay off your student loans and/or pay for grad school.
Just a couple of ideas from a really smart guy.
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I am not a US citizen living in Japan and a newbie in investment. I wonder which service is best to start investing for non-US citizen living outside US. I would like to do automatic investment from my paypal account but i just read the agreement in sharebuilder website saying that it doesn’t support residence living outside US. Please help since I really want to go into investment now! Any advice would be highly appreciated.
Ps: I have posted once but noone responsed since then. And that’s why I decided to post again. It’s already 4 months since then!
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Share builder will rip you off and funds will come up missing when you make transactions. When you call them tell just say tuff luck. Has anyone else had this problem with share builder? Lets start a class action because I am sure I am not the only one they ripped off
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I have had accounts at sharebuilder for quite a few years, as well as accts at most of the other big names, so I can compare w/o bias. I find sharebuilder fills a different role for me; the auto investment plan really helps me a) save time, b) sidestep most of the famous “investor bias errors” and c) maintain discipline in routing all my excess $ into a nicely balanced portfolio at low cost. It minimizes my mental time spent on managing orders, helps me avoid second guessing market trends, etc. If you have a positive cash flow and need it a) out of your hands and b) into something productive, sharebuilder is good. I’ve had very good customer service from them, also. The fees are very modest if you use it wisely. The interest on cash is good (used to be amazing, but ING lowered it to merely decent).
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I’ve had an ING direct savings account for a few years now, and today I decided to take the plunge and open a ShareBuilder account. No sooner had I gotten to the “What do you want to do?” page did I realize that I have absolutely NO IDEA what I’m doing. I was thinking I’d like to do some very basic, not-too-risky investing just so I get some experience with this stuff…. but I don’t even know how to start!
I’m 25 and never done any of this before. I just finished grad school, so I’m starting to pay off my undergrad/grad loans (total: about 40K). Have a teeny 403a/401b from working in non-profit in grad school, will enroll in 401K at my new job as soon as I become eligible.
Anyone have tips for me on how to get started? I feel like I’m drowning in all this lingo I don’t know..all these disclaimers, fees… yuck!!
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No one has mentioned direct stock purchasing to keep costs down for purchasing stocks.
Sharebuilder.com if for those ready for buying stocks or EFTs.
Pre-tax retirement savings plans: either through your employer or discount broker – one should start out buying no-cost mutual funds. $100/month will get you started.
After watching the stock market gyrations – if you want to plunge into individual stocks, then consider direct stock purchase plans (dspp). You purchase from the company and forgo any broker fees. If you are going to do buy-and-hold, you get the same advantages as sharebuilder.
The biggest advantage of Sharebuilder for me is the fractional share purchase ability. When I’m ready to buy Berkshire Hathaway shares, I’m sure I wont have $120K for one share, let alone $4K for a class B share.
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How can you possibly advocate investing in retirement when he has outstanding debt? He didn’t specify what the $30k in debt was, but assuming it is averaging over 10% interest and fees (which I’m sure it is, unless it’s all mortgage), then taking $x and investing it in the market earning 8-10%/yr historically is a huge loss versus taking that $x and using it to pay down the debt. The only way that it MIGHT make sense is if we’re talking about pre-tax contributions to a 401k or tax-deductible IRA. Even then, though, it depends entirely on the numbers, and I’m still betting it makes sense to get rid of that debt instead.
The person commenting that he should invest MORE so that when he digs himself out of debt he will have something is not thinking about this the right way. Treat the debt as a negative in one’s net worth calculation. Take projected earnings from retirement savings and also take the projected loss due to compounded debt interest. The question is NOT “what do I have when I get out of debt?” but rather “when does my net worth become > $0.”
The answer is: sooner rather than later, if you take that money and pay down high interest debt rather than investing in a (historically) lower interest investment vehicle like the stock market.
Bottom line: if you owe me $18 in a month from now, but you could pay $10 now to get out of that debt, then you have a guaranteed 30 day return of 80% with respect to your total net worth.
It does not matter whether you are earning a dollar or having a dollar of debt forgiven. It is just a different perspective on the same thing.
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How to minimize fees on sharebuilder: there are a lot of variants, but here are a few (fairly obvious) pointers, since from the discussions it sounds like folks (and the column’s author) haven’t fully exploited the features to make the best use of sharebuilder (i.e. maximizing convenience & returns while minimizing fees). One step is to pick a % fee you find acceptable as a target. Let’s say 1/2% for fun. If you have very little to invest, say $100/month, then your best bet would be the basic plan (no monthly fee, but a higher $4/buy), set the amount to $800/stock you wish to buy, and set the timing of your auto plan to “when sufficient funds are in account”. And then leave it. Your $100 will go in, and when the account has $800 it’ll buy your stock, charge $4 fee, and you’ve hit your 1/2% target. In the meantime, the cash earns very decent returns (for a cash account). With this small an input you’d probably want to simply be investing in some broad low-cost index like VTI, of course, and leave the “fancy stuff” to those w/ more $$ and less sense. You can adjust your plan as often as you wish, to get other stocks. You have more options if you can put more in it, but it’s very workable if you limit the # of stocks you’re pursuing at one time commensurate w/ your free cash. If you can put in $100/week, or more, it really gets fun! But the main benefits are already reached at a low level; the cash is out of your hands, earning interest, and will automagically go into a smart investment *w/o you having to spend any more time on it, worry about it, or adjust limit orders as the market changes*. And it can be set to reinvest dividends, which is much handier (all stocks in one account) than many individual drip accounts (more than enough convenience to offset the very modest fees). You can make sharebuilder fees go as low as you have patience for; set the buy to $5200 and your fees would be $4/$5200…darn near zero. Fire and forget; move on to living your life, as all the research shows more time spent on finessing your investing actually yields lower returns (Schwab facilitated the first such study, but there have been several; investors are bad for their investments, it’s pure ego to think otherwise and unsupported by facts). And, yes, to the ranting fellow with the good point; always get rid of debt first. After that, invest happily! Best of luck to you.
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I opened a Sharebuilder account earlier this year in January after my roommate told me that is what he uses. So far I am satisfied. I use the basic program so I have no monthly fees. There are some good articles about investing for beginners on there, although the actual research available about particular stocks is limited if you use the free monthly plan. I made purchases in January, March or April and made some more this week. So I have only been charged $12 ($4 per trade). I think I actually somehow received my last purchase free. I will say that I was not aware that the $4 per trade was only for buying. I’ve seen a few say that the cost to sell ranges from $11.95 – $15.95, which sucks because I didn’t invest that much in the stocks I own that would make that price to sell worth it.
However, my roommate and a few others have mentionied that customer service is great. Furthermore, Sharebuilder is for long-term investments. They even charge you more if you sell stocks that you have owned for less than 90 days. I am not an ‘active’ trader and I only buy dividend paying stocks. My goal is too eventually own enough stock that my dividends provide a substantial income.
I opened an traditional IRA just because they had a 7-free investments promotion. I have yet to contribute to it. I almost did it but realize they charge a $25 or so maintenance fee for the IRA. Again, my investment would not be that much so the $25 is too much for me at the time. I will probably look into other services when I decide to contribute to an IRA.
With that being said, I would recommend Sharebuilder.
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You should know though that recently Zecco has been having major issue’s with login and displaying correct funds in the account. Ya $0 is nice but if you had $10,000 and one day it said $4,000 that would be sooo bad.
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Boy are you slimy.
You are saying “Zecco” is like sharebuilder and linking to your affiliate with them, when in reality, it is Options Trading site, which is too complicated for most average investors to understand.
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I’m confused, Chad. Get Rich Slowly also links to Sharebuilder through an affiliate link. There’s nothing hiding that for either one. Further, Zecco is NOT just an options trading site. Options are available there, but so are stocks and exchange-traded mutual funds. You may want to re-read their site (and perhaps this post). I’m endorsing neither Zecco nor Sharebuilder. I’m just pointing them out.
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Wow, I didn’t think I’d ever hear someone who considers themselves an expert on finance say that the best investment to pay off debt. Anyone who has taken an undergrad class in math of finance knows that investing your money at a higher yield than the interest you pay on a home loan will be a better investment. There is no guaranteed route for consistently getting high yields, but its certainly wrong to say paying down your debt(especially without knowing the individual’s terms) is always the smartest investment.
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Chad,
not always, but usually! It depends on the interest rates, taxation, and risk. However, with the exception of secured home loans that are at low rates and have a tax deduction for interest payments, a more careful consideration will generally yield that conclusion. Debt payments are certain; investments are not (as recent events have so nicely illustrated they are very far from certain!). Debt payment (except for home interest) is generally with post tax dollars. Investing returns (except in Roths etc) are pretax. Make sure you compare the differential benefit on an apples-to-apples (all pre or post, risk adjusted) basis. As you can imagine, anyone who blindly thinks they’ll get 10.5% out of the S&P right now is likely in for a surprise. However, their debt obligations (generally, debt foregiveness being an exception rather than the rule) continue steadily. Happy trails.
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this was a top google hit…so long ago, but your opinion may misinform others. a $4 fee for every $100 contribution you were making IS A BIG DEAL! you’re shaving off 4% from your principal that may take a few years (if you’re lucky in the present market) to make back and then you’re losing out on all that potential compounded interest–assuming your risk in the stock market pays off and that you don’t withdraw money from the account before retirement, which is one of the reasons you would start a Roth IRA–for its flexibility.
but really investing is more favorable to the wealthy because principal is really the principal factor in how much ROI you can make in relative wealth. the rich get rich the poor get poorer, the disparity in wealth continues to grow.
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