Dual Income No Kids just posted about their plan to use Sharebuilder for a $75 purchase. I probably overstepped my bounds but I REALLY hate Sharebuilder so I had to respond. My response is below:
Hi,
Just a quick comment about Sharebuilder. I started investing through them and I kick myself every single time I see the statements because I lost so much to fees and selling is so expensive. I'm really not a fan of this brokerage for several reasons. The biggest reason is that the price sounds good, but really it's not. You're paying almost 5% commission on that $75 transaction which is not even close to being a good deal even though $4 sounds great. That doesn't even take into account the sales fee which is about $15. The rule of thumb that I teach my students is that if your transaction expenses are more than what you would pay annually for a good fund (less than .5%) then you don't have enough money to invest in individual stocks. You'll get eaten up by fees and it's a fact that high fees are one of the things that can most damage your investment returns.
On top of that, you aren't diversified because you're only buying one stock at a time and you have zero control over when you buy.
A much better idea would be to invest in a no-load fund through Vanguard or Fidelity. Or, if you don't have enough for the minimum to start an account with those brokerages, T-Rowe Price has a program where you can start a Roth with as little as $50 if you sign up for automatic contributions.
The benefits of this would be 1 - you wouldn't be wasting money on transaction fees (who wants to have a 5% guaranteed loss the second you purchase the stock?!), 2 - you would be diversified instead of risking your money on just a couple stocks.
If you really insist on using Sharebuilder I'd consider buying an ETF instead of an individual stock. You'll still be losing a big chunk to transaction costs but at least you'll be diversified. Personally I love DVY and since Sharebuilder allows free DRIP it's good for that brokerage.
So, sorry for butting in but I hate to see people spending more than is necessary.
Good luck and if you have any questions don’t hesitate to ask.
Mandy
pf101
1 comments:
Obviously the guy has big stock investments so diversification isn't a problem. But it's nuts to buy $75 of a stock unless it was with Zecco or some other free or ultracheap broker. Interactive Brokers charge $1 for that transaction ($5000 account minimum)
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