The pros and cons of Sharebuilder

guy working at computer

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.

Related >> What is a Roth IRA?

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 Capital One 360 (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.
  • 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.

Related >> Which High-Yield Online Savings Account is Best?

Do What Works for You

Zecco (Now TradeKing) is another alternative to Sharebuilder. I'm not sure what automatic investment options TradeKing 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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Andrea
Andrea
12 years ago

Another option I went with is I opened an IRA with Charles Schwab. They say there is a min. of $1000 to open an IRA, but that’s not really the case. Most mutual funds for IRA’s start at $1000, but you can set up a automatic payment monthly or however often you want and let the money sit in there earning some interest (I don’t think it’s very high, but it minimizes constantly moving the money around) until you have enough to make your first investment into a mutual fund, then typically any aditional money into that mutual fund is… Read more »

JPNWV
JPNWV
7 years ago
Reply to  Andrea

With Sharebuilder on certain Mutual Funds(one of them is American Century) there is a initial investment of $250, then do a automatic investment of at least $25 and there is No purchase fees.

Craig
Craig
12 years ago

If you open an IRA with T. Rowe Price there is no minimum investment needed to start as long as you set up an automatic contribution plan. The only fee that I had to pay was a one time $10 account maintenance fee. There is no fee for each transaction like sharebuilder. I started with a Target Date fund because it seemed like a great way to get started and I only needed to worry about contributing to one fund initially. From their website: “The minimum initial investment to open an account is WAIVED if you choose to fund the… Read more »

The Saving Freak
The Saving Freak
12 years ago

I have employed the strategy you listed as “another option”. We put $200 into my ING Savings account and once we have built up enough to buy into Vanguard we will open the account. At this point the transfers for ING will stop and will be redirected to Vanguard. So far no problems and we are in the process of opening the account with Vanguard.

SleepyOreo
SleepyOreo
12 years ago

I don’t agree that paying off debt is the best investment. Granted credit card debt usually carries extremely high interest rates which would lead me to reccomend paying it off first. However, once the debt is completely irradicated you’ve dug yourself out of a hole only to be left with nothing.

Save and pay off debt at the same time, the power of compounding will serve one better in the long run. Best to get started early with saving while paying off debt.

Rock RunFinance
Rock RunFinance
6 years ago
Reply to  SleepyOreo

You are so wrong! Paying off high interest debt 1st does not leave you w/nothing. You are actually earning the rate of the interest of the debt. Ex: If you owe credit card bills w/20% interest rate, by paying down that bill you are earning 20%. Pay that off FIRST then invest. Of course this does not apply to low interest mortgage debt that is also tax deductible. In this case if you can earn higher returns on your investments then it makes sense to invest.

CFPfor33
CFPfor33
1 year ago

You don’t have experience with people (other than yourself) in this situation. What happens is they pay down debt furiously without saving, have an expected expense and/or want to reward themselves and, without any saving, incur new debt to do so. SleepyOreo’s approach makes perfect sense in the real world where something other than the pure “financial” approach often works.

joanofark06
joanofark06
1 year ago
Reply to  SleepyOreo

SleepyOreo, can you recommend somewhere, where the compounding is best? Or is every service that does compounding basically the same?

Angie
Angie
12 years ago

What about those monthly fees at Sharebuilder? They seem high for a small investor. $12 a month in addition to $4 a trade?

Mike
Mike
6 years ago
Reply to  Angie

Sharebuilder is $4 per automatic trade or you can pay $12 a month and you get 12 free trades plus $1 per trade after that. If you make one trade per week (4 times a month) that would be $16 for the free basic plan. If you paid the $12 a month fee, you would save $4 a month. It all depends on how frequent you like to trade. I have been with Sharebuilder for many years and love how easy it is to use. I chose them because you don’t need a minimum amount to get started.

Leon
Leon
6 years ago
Reply to  Angie

Sharebuilders discontinued the $12.00 Advantage program. Their automatic investing is $3.95 a transaction, $6.95 to sell.

I don’t remember getting a memo. I found out the old fashion way, I waited for their slow chat service.

Les
Les
5 years ago
Reply to  Leon

I was actually able to get the $12 plan even after the discontinued. I called them and asked them about it. They told me that they will activate it for me just one time. Once you cancel it though, you can never get it back. Now here is the kicker. If you pay the $12 a month, it doesn’t count toward your investment cost. Not sure why, but it doesn’t. A bummer if you ask me because it still cost me $12. Anyways if you buy more than 12 trades in a month then it is a $1 per trade… Read more »

KMull
KMull
12 years ago

Bill shouldn’t worry about investing with $30,000 in debt. Unless that debt is his mortgage or low interest student loans, he needs to pay that off first. Of course, it depends on his income — $30,000 in debt is a lot to someone making $40,000/year, nothing to someone making $250,000/year.

Anne Keckler
Anne Keckler
12 years ago

As Angie says, there are monthly fees at Sharebuilder. For my stocks and some of my funds, I use Scottrade. I get immediate trades for only $7, and no monthly fees.

The Travelin' Man
The Travelin' Man
12 years ago

I am a small investor and have accounts with both Sharebuilder and Zecco. For that matter, I also keep an account with TD Ameritrade that I opened before I knew any better and have just been too lazy to do anything about it. FOR ME, Zecco and Sharebuilder are both less expensive than the account with Ameritrade, which is why I use them. I have begun shifting my deposits from Sharebuilder to Zecco, which after a trial run, I have found easy enough (FOR ME) to use. Plus for Sharebuilder: The ease of the automatic investment. Sure it is $4… Read more »

FinanceAndFat
FinanceAndFat
12 years ago

My only problem with Sharebuilder is that it is marketed directly at the small investor, but the fees are an incredibly high percentage for someone only investing $100 at a time. I fell for that about a year ago an quickly realized that the fees were killing me. As someone above mentioned, I use Schwab now. They offer a large list of mutual funds you can invest in with $0 fees and minimums of $100 and you can start an IRA if you set up a regular $100 transfer (or start with a $1,000 lump sum). I’m not a Schwab… Read more »

Rob M.
Rob M.
12 years ago

If Bill has $30k of consumer debt, investing would be rather counter-productive. His best investment right now would be to cut dining out/entertainment/non-essential expenses and put that towards paying off his consumer debt. Consolidating high interest consumer debt into a HELOC or transferring to a lower interest credit card would be a smart move too.

Baba Ghanoush
Baba Ghanoush
12 years ago

The basic plan at Sharebuilder has no monthly fees. This is the only plan you should consider, IMO. And Sharebuilder allows you to purchase partial shares, so your entire monthly contribution can go to work for you at once. But if you’re a small investor, you’re better off buying one security per month at $4, rather than a small amount of each stock in your portfolio at $4 each. This means always using one-time purchases. If you hold multiple securities, just rotate through them each month. You can still schedule a monthly transfer of money into your account. And before… Read more »

Jon
Jon
12 years ago

One of the newer things Sharebuilder offers now is the ability to execute your trade when funds are available, rather than on a fixed schedule.

That means you can set it up to buy $1000 of XYZ Corp, and then make automatic deposits of $250 a month or whatever, and the money will sit in the money market fund earning interest (higher than ING, I believe) until you have $1000 deposited.

Toni
Toni
12 years ago

In the past, I’ve used murielsiebert.com for trading stock – although I did not use their services as described in the article. I was very very pleased with them. In particular, I didn’t get charged any account fees or inactivity fees. Eventually I closed the account because I decided that stock investing wasn’t for me but I recommend their service highly.

J.D.
J.D.
12 years ago

As Baba noted, for the basic plan at Sharebuilder, there are no monthly fees. And it always costs to sell.

Free From Broke
Free From Broke
12 years ago

You’ve pretty much outlined my plan for an IRA. We’ve been saving in ING for some time now and we will soon open up our Roth IRA’s with Vanguard. I’m also considering opening up an account with ShareBuilder to buy stocks. One plus for me in SB is they were bought by ING recently. I’ve had no problems with ING so I think I can trust SB more now.

JB @ GetRichOrDieTrying
JB @ GetRichOrDieTrying
12 years ago

Thanks JD for this info. I had opened a Roth IRA at Sharebuilder but have not funded it all yet… I think now I’m going to use your ING -> Vanguard plan… I already have a 401K at Vanguard and can’t complain.

Aaron
Aaron
12 years ago

I used sharebuilder for a while and was very satisfied with it. The only reason I stopped because I qualified for 100 free trades a year through my bank.

One thing to remember about sharebuilder is that the partial shares they let you purchase cannot be moved to another brokerage. You must sell them to get your funds out and it’s like $15 for a sell order.

On the whole its a great service, especially if you want to trade ETFs and are looking at long term asset accumulation.

Connie
Connie
12 years ago

I love Sharebuilder. It has allowed me to begin investing and learning at the same time, using a very small amount of money every two weeks. It is perfectly suited to people like me who are new to the concept of investing and have little enough to invest anyway. When I get more serious (and more informed) about investing I may switch to Vanguard, but for now, Sharebuilder fits the bill perfectly! Also, The monthly fee includes either 4 or 6 trades, and you can actually save a couple of bucks in fees each month if you plan to make… Read more »

John
John
12 years ago

If you get paid twice a month, then starting January 1, transfer $208.33 each pay period into the IRA. That will get you to $5k at the end of the year.

[ this is jerry ]
[ this is jerry ]
12 years ago

Great post.

The note at the bottom is one of the big reasons this blog rocks: you’re honest.

Charles
Charles
12 years ago

I am a huge proponent of Sharebuilder. I’ve been using them for over two years now to fully fund my Roth IRA, and I couldn’t be happier. One of the lesser known secrets about Sharebuilder is that you can get the standard plan for only $100/year. This gives you six free investments per month and waives the typical $25/year Roth IRA fee. I pay per year, so I effectively pay only $8.30/month and I am able to buy into six different low-fee ETFs every month, allowing me to take advantage of dollar cost averaging. If you’re on the basic plan… Read more »

Josh Baltzell
Josh Baltzell
12 years ago

I don’t know if this was already mentioned, but I started a ROTH IRA with nothing at Vanguard because they let you invest as long as you put in at least $200 a month. No minimums.

Ryan S.
Ryan S.
12 years ago

I use Sharebuilder for a regular brokerage account. I agree with JD; there are some drawbacks. Compared to my other brokerage account, which is $7.95 per trade, if I was going to invest monthly in a stock I couldn’t get from the company directly as a DRIP, I would use them, but only if I could get the monthly investment cost ($4) to about 1% or less of the investment. I am in that situation, so I use it that way. But there are other ways to make similar investments and dollar cost averaging has its advantages and disadvantages.

Katrina Ramser
Katrina Ramser
12 years ago

Can you talk a little about socially-responsible investing? I switched from Hartford mutual funds to Calvert (www.calvert.com) and was assured by my Financial Consultant I’ll get about the same return.

Matt Wolfe
Matt Wolfe
12 years ago

Over at Zecco, don’t they have fees for mutual and index fund trades? I think that’s how they make their money. In that case, I don’t believe Zecco is the best option for a Roth IRA because I believe that in an IRA you want to hold mainly funds. I think the best strategy for an IRA is to buy into funds that have no transaction fees and then make monthly contributions. Zecco seems like a good option if you plan to trade mainly individual stocks and ETFs but you will probably eventually want to switch to something that takes… Read more »

luke
luke
12 years ago

I’m a beginner investor, and just set up an account at Sharebuilder at $100 a month. My first $100 went in the other day, and I quickly realized my less-than-perfect scenario: I had selected their investing ‘wizard’ which suggested two funds to invest my $100 in. That turned out to be $4.00 PER fund, so they took $8.00 out of my $100. But if with one fund, $4.00 is still a 4% loss right at the beginning. So I changed my schedule. I eliminated one fund and just kept the S&P Index fund. Then I changed my transfers so that… Read more »

Josh Baltzell
Josh Baltzell
12 years ago

Oops, sorry. I mentioned that I use Vanguard for $200 a month with nothing down, it is actually Fidelity.

Daniel
Daniel
12 years ago

As mentioned above, T. Rowe Price has no account minimum as long as you set up an automatic contribution plan. $10/year fee for having an IRA. Fidelity is now waiving their $2500 minimum if you have a $200/mth automatic contribution set up. No $10 fee. I am a big fan of T. Rowe Price and Fidelity. They make investing easy, and have great low-cost index funds to choose from. Since Sharebuilder is based on ETFs, I’m less of a fan of them. For monthly investors, those $4 fees can make a difference. With T. Rowe Price and Fidelity, you can… Read more »

Dividends4Life
Dividends4Life
12 years ago

Zecco intrigues me. Each time I get close to trying it I see a nasty post and pull the plug. It is one that I will continue to monitor.

Best Wishes,
D4L

Mark A.
Mark A.
12 years ago

The best option for this situation is an ING IRA. They charge a $10 annual custodial fee and thats it. You need at least $250 to open an account or contribute at least $25/month to your account.

Justin
Justin
12 years ago

Fidelity is a good option, too. I really liked everyone I spoke with in the customer service department.

Penguin
Penguin
12 years ago

I to began my retirement investing with T Rowe Price. They have some of the best target date retirement funds out there and waive the opening minimum with a 50.00/month automatic contribution. There is a 10.00 annual fee until your account balance is above 5000.00 but to me it is a lot better than Sharebuilder. T Rowe’s customer service has always been amazing.

Dan
Dan
12 years ago

I am thinking about an ING IRA. Any more opinions or experiences about them?

SR
SR
12 years ago

Dan: I signed on to an Ing IRA about six months ago, and it’s done nothing. Last night, it was below the amount I’ve put in to it. I have my contributions in a variety of bonds, small/medium/large cap, and dividend funds — so I don’t think it’s a matter of me being too narrowly invested. In comparison, an old 401k account of mine (still) at Vanguard, has averaged about a 20-25% annual return over the past six months (every month it tells you the change over the past 12 months). Sure, the Vanguard account goes down when the market… Read more »

Rob
Rob
12 years ago

I have T. Rowe Price and it is amazing. I started doing the $50 no-minimum monthly investment and every six months I bump it up a little more. Great funds, low expenses, great customer service and no minimums.

MMJ
MMJ
12 years ago

T.Rowe has been great for me. Great fund options, low cost and no initial deposits for the automatic asset builder. We have a Roth IRA and a regular mutual fund there, plus use the Account Minder feature to monitor all my financial accounts.

Melissa
Melissa
12 years ago

Another T Rowe Price fan here, though I also have some ETF’s through Sharebuilder. The automatic asset builder is a great way to get started with investing, I started with one fund once a month back in 2001 and have worked my way up to 4 funds. My account is a regular taxable one not an IRA, I believe the yearly maintenance fee some have mentioned only apply to IRA’s with less than $5k cause I went many years with a balance lower than that and never paid them a fee. If you want mutual funds, then fidelity, vanguard or… Read more »

Phil
Phil
12 years ago

I tend to prefer Vanguard because they have a much safer investment style. By that I mean that Vanguard didn’t get caught up in mortgage backed securities like Schwab and ETrade (and others) did. Bogle’s investment philosophy tends to permate the whole organization from what I can tell and that’s a good thing.

However, I notice that Vanguard has the slowest website when it comes to investment sites. Anyone know why?

BillyOceansEleven
BillyOceansEleven
12 years ago

The only use I had for Sharebuilder was taking advantage of all the promotional bonuses they used to offer. A couple of years ago you could easily sign up for multiple accounts using different promo codes to collect the bonuses. My wife and I probably cleared $1200 doing this. Unfortunately they have closed the loophole, so now it is one and done.

Tim
Tim
12 years ago

I agree, that with $30k debt the person shouldn’t be worrying about investing. They should be worrying about est. an emergency fund and paying off the debt. of course if the discussion was about matching 401k, then it may be a different situation. forget sharebuilder and start putting money in a high yield savings account. I can’t believe people still are loyally using ING as an example and recommendation for high yield savings account at 4.2%. also, if the fed lowers rates as expected, ING will undoubtedly be the first to lower its rates again and it will be below… Read more »

KM
KM
12 years ago

I kind of hate Sharebuilder because of its fees, but that’s just me.

I have my Roth IRA with Vanguard, which I highly recommend. If you are young, you have a lot of years ahead of you to let your IRA grow. Therefore, I would NOT go with sharebuilder or any other fee based IRA. The fees will build up over time to a substantial amount and it costs money to transfer IRA accounts.

Aaron
Aaron
12 years ago

Sharebuilder is a unique tool that helps a lot of people, but it certainly is not for everyone. Paying off that debt is definitely always the thing to do first.

B
B
12 years ago

Has anyone looked at folionfn.com?

Ed
Ed
12 years ago

I read this post a number of days ago, but forgot to mention that if you are a Costco Executive memeber you get a 25% rebate on the monthly fees you incur if you make one trade a month. I myself am on the basic plan and invest once a month, that lowers my per trade transaction cost to $3. I am not sure if you get the 25% back on a sale order as I have not sold yet.

Nikki
Nikki
12 years ago

Just to let everyone know with the purchase of Sharebuilder by ING they have already reduced the fees down 9.95 per trade. I am just a beginning investor. And I believe that SHarebuilder is good for the beginner. If you are investment savvy…I don’t recommend as some of the earlier posts read…the fees will bite you. But I have no savvy whatsoever…I don’t trade on a regular basis enough for the fees to get to me. Someone stated with the FED cutting the interest rates like they are there’s no point in having an ING account. I disagree…because the FED… Read more »

sengly
sengly
12 years ago

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.

nprfreak
nprfreak
12 years ago

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… Read more »

steve, fort collins CO
steve, fort collins CO
12 years ago

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… Read more »

CL
CL
12 years ago

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).

CAF
CAF
12 years ago

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… Read more »

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