For those of my readers that don’t know, I use ING Direct as my primary bank. I have both a checking and savings account through them. Every so often, I get an email from them regarding their investing arm through Sharebuilder. I never have been interested in Sharebuilder as I use Schwab for my investing. I have had no issues with Schwab and the fees that I pay to trade stocks are reasonable.
Most of the offers from Sharebuilder are for free trades, which I am not really interested in because I do not do a lot of trading. I mainly invest in mutual funds and hold for the long term. However, the recent offer I received for $50 interested me. I decided to look at the site.
While I feel that Sharebuilder is not ideal for stock purchases, it could be a nice starting point for small mutual fund investors. Through Sharebuilder you can invest in over 250 mutual funds from 8 fund families including American Century, PIMCO, Fidelity, T Rowe Price, and Vanguard. Unfortunately, if you invest in Vanguard, T Rowe Price, Fidelity, or Dodge & Cox, you will pay $19.95 per trade. If you want o set up an automatic investing plan, that will cost you $4 per investment.
I refuse to pay to invest in these fund families. Luckily though, there are some good funds offered through the other four fund families that do not charge for you to invest in. They include American Century, PIMCO, ING Funds, and Dreyfus. Even better, if you invest in American Century directly for example, the fund minimums are $2,500. But, if you invest through Sharebuilder, the minimum is $250. This is great for small investors who don’t have $2,500 to start. From there, you will need $100 to invest each time again.
The reason I am against Sharebuilder for stock investing is two-fold. First off, if you are a small investor, you should be focusing on investing in mutual funds so that you are diversified. Investing in one stock is not diversified. Secondly, the fees are high. For normal stock trades, you will pay $9.95 per trade. If you sign up for the basic automatic investing plan, it is $4 per trade. If you upgrade to the advantage automatic investing plan, it is $12 per month which includes the first 12 trades. Any more trades are $1.
If you are going to invest in a stock frequently, you should just save up the money you want to invest in the stock and make a one-time purchase for the $9.95 fee. It makes no sense to buy 1 share of stock each month for $4, or pay $12 per month for the privilege.
I ended up buying a mutual fund through Sharebuilder at no cost. After I made my investment, I was credited with my $50. The account registration process was a breeze (I’m not sure if that was because I already had an ING account or not). The transfers of money from ING to Sharebuilder are instantaneous, which is awesome. For how I am using Sharebuilder, I think it is a great service. You can find some good, no-load, no fee mutual funds to invest in with a very low initial investment.
If you are looking at investing in certain fund families, like Vanguard, you are better off saving up the $3,000 and investing directly with Vanguard as opposed to paying the $19.95 to Sharebuilder.
For stocks, if you are making large, sporadic investments, the $9.95 per trade fee is average for the industry. I would advise against using Sharebuilder for regular stock purchase investments as the fees will eat into your returns.
{ 2 comments… read them below or add one }
Why does Sharebuilder charge such high fees for Vanguard Funds?
Mildred,
To clarify, most of the mutual fund options on Sharebuilder do not charge a fee. The one's that do (Vanguard, Fidelity, etc) do so because the fund company itself forces sites such as Sharebuilder to pay a fee to offer their funds. It's not just with Sharebuilder. If you try to invest in Vanguard funds through Schwab, then you are looking at a $19.95 per trade fee as well.
As for stocks, the $9.95 is reasonable when compared to many others. Where it really becomes expensive is when you make small re-occurring purchases every month for $4. You are much better off saving your money and investing less frequently.