Reduce Your Trading Costs with Capital One 360 ShareBuilder

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In my review of Sharebuilder a few days ago, I overlooked an important feature that commenter a schmuck pointed out. I had complained that $4 a trade is pretty high unless your monthly contributions were at least around $400. For example if you paid $4 every time to contributed $50, you’d be behind 8% right out the gate. Before, your choices of investment schedule were only weekly, monthly, or twice a month.

But when you create or edit our Automatic Investment Plan, you can now also change the frequency to “invest when the funds are available”.

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From their Help section:

How does “invest when the funds are available” work?
If you decide to invest when the funds are available you are indicating that you want your plan to invest on the Tuesday immediately after your money market cash balance meets or exceeds the plan?s total investment amount. Every Monday at 5:00pm (ET), excluding holidays, ShareBuilder will create Automatic Investment Plan orders if your account?s money market cash balance meets or exceeds the plans total investment amount.

This is great! Say you only want $100 taken out of your bank account each month. At $4 a trade, I would want the commission be at most 1% of the trade amount. So you could see your Automatic Investment Plan to buy $400 of an ETF. Now, when you reach $400 in 4 months, you make the trade. In the meantime, your idle cash is actually swept into their money market account (BDMXX), which is current yielding a somewhat decent 4.11% APY.

Like commenter Stephen said, “If you’re dollar cost averaging, it doesn’t matter when you make your purchases.” And this way it’s all automatic! You won’t need to remember to do it 4 months out. You be less likely second-guess yourself before clicking the “execute trade” button, especially if the market is temporarily tanking.

If you do decide to use ShareBuilder to implement a buy-and-hold portfolio, I think this a really good way to do it.

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Comments

  1. That is a great feature! I still have a Sharbuilder account, though I had stopped using it when I realized how much the $4 was hurting my tiny $100 investments. Looks like I may have to give this a try.

  2. Say I wanted to implement a similar method w/zecco so I get free trades. What happens to my idle cash in a zecco account — does it also get swept into a money market account, or does it earn 0% Would you recommend sharebuilder over zecco for a buy-and-hold strategy?

  3. Thanks for the heads-up about this new feature. I just changed my Sharebuilder investment schedule to take advantage of it.

  4. That’s better in reducing the cost. But I still like the idea of investing the money right away when it’s available and investing once every four months may not be any better than, say, investing once a year. Though the interests from their money market account provide some compensations for idling the money, it may not work out as a better investment scheme unless the interests are also invested.

  5. Ted Valentine says

    Or you could buy low cost no fee mutual funds direct every month.

  6. Mike – Zecco has a few money market options that you can sign up for, the taxable one is currently at 4.09%.

    Sun – Investing as-soon-as-possible probably does result in better overall returns in the long term, but is getting in a few months earlier worth paying a 3% higher front load? My guess is no, but I can run some numbers later today.

    Ted – Agreed, that’s what I do.

  7. Cheapster Bob says

    Ted, I’ve heard that over 80 percent of Mutual Funds in the world fail to beat a simple Standard and Poor Index fund. This isn’t a flame but I just wanted to know why you are playing those odds?

    I have no choice to via my 401K and I have a lot of money socked into, what I thought, was a premiere fund which is Dodge and Cox. That was until I got my prospectus yesterday and found they were 1.9 percent under the S&P for the year and only beat them something like 41 times while losing to them 39.

    It seems to me simply investing all of your funds in the S&P while buying and holding is a no brainer and you can do that via Sharebuilder.

    By the way, this was a very useful blog post today. I have a Sharebuilder account from four or five years ago but stopped do to the fee pummeling. I now plan to start throwing money into their S&P fund.

    Cheapster.

  8. Great info!! I just set up an automatic plan using you and your readers’ tips to invest in VEU (Vanguards all-world ex US etf) for my Non-Qualified investments. This along with the Roth that I already am funding should help me reach my future investment/retirement goals that are similar to yours.

    I have probably learned more USEFULL info from your blog and your readers’ comments than I have in all my years in school or working in the financial industry for the past two years.

    I propose that we all meet up on a cruise or golf course in twenty to thirty years to celebrate our success. I’ll supply the cigars!

    Of course we will have to find the cheapest cruise possible.

  9. Baba Ghanoush says

    Like commenter Stephen said, ?If you?re dollar cost averaging, it doesn?t matter when you make your purchases.?

    So I could dollar-cost-average by making a $12000 purchase every 10 years, and it’s just as good as buying $100 a month, right?

  10. Ted Valentine says

    Cheapster Bob … I never said what fund to buy. You can buy the same S&P 500 for no commission, no load in a mutual fund directly from Vanguard (VFINX), Fidelity (FSMKX), T Rowe Price (PREIX), Schwab (SWPPX), and many others.

    If you’re investing amounts similar to Jonathan’s example, ETFs just don’t make sense. Read here: http://finance.yahoo.com/etf/education/10

    Sun if you know of any study that shows investing immediately vs. 4 months later will earn 3% more please share! Otherwise, what Jonathan is saying is the better choice.

  11. > Of course we will have to find the cheapest cruise possible.

    By then we’ll all be filthy rich from saving and being smart with our money that we will be able to afford the best cruise they have.

  12. I opened up a Sharebuilder account in October 2006 because of the $55 sign up bonus from Costco. I also thought it is a nice idea to invest some extra money. For the first 2 months I invested $50 and after that $100. But then (too late) I started to make some calculations. In all I transferred $1300 and because of all the fees I actually only invested $1248. If I just had put these $1300 in a money market account and earned an average of 4% I could have now $1350+.
    Quick calculation: (1350/1248)*100 = ~8% or that is how much I would have needed to earn to be just as good as the money market account. Needless to say, I also made some bad choices and I have now about $1180 left in my account.
    I think, I remember that Sharebuilder promoted their business as a great way to invest small amounts maybe even just $25. More people need to make calculations about the costs involved and what is a realistic return. As I recall 8% is what is historical seen as long-term return on the stock market. Investing every month $100 – $4 with Sharebuilder is a bad deal and investing $25 – $4 is just like flushing the money down the toilet.

  13. torsten, it seems like you are ignoring the $55 bonus you got (which was partially the point of you getting the account I assume). sure it won’t matter year-over-year that much, but initially, unless that $1248 means that you paid $107 in fees (1300-107+55), your “quick calculation” should be (1350/1303)*100 = ~3.6%.

  14. If anyone here is dollar cost averaging, I’d suggesting heavily weighting your investing in the beginning of the year. If you can afford it, invest $200 a month for 6 months instead of $100 for 12 months. The vast majority of the time (in recent market history, past 25 years) the market is rising, which means that the price of stock is lower in the beginning of the year compared to the price at the end of the year. So putting in more money in the beginning of the year compared to the end means that you buy more shares of a fund or stock than you would if you spread it out over the year.

    “But”, you might say, “What if the stock price goes down? That’s why I dollar cost average.”

    That is part of the risk, but if your stock/fund is going down more than one year in a row, then you have picked the wrong stock anyways. Over just one year, it’s not too bad.

    I’ve actually gone through historical prices of more than a dozen stocks in the dow jones and every single one would be better buying more shares in the beginning of the year instead of spread out.

    I’ve done this in my 401k plan so I max out by August. (that’s what I can afford). After that I get a “bump” in my paycheck.

  15. Lots of bad ideas here.

    Investing $100 each month on something with a higher return than the money market will make you more money than investing $400 each month while your money accumulates in the money market. Why? Because, in a market that tends to go up, 4 investments of $100 over months 1, 2, 3 and 4 will normally beat one investment of $400 in month 4; you’ve got $100 getting an extra 3 months of return, another $100 getting 2 extra months, and yet another $100 getting one extra month.

    Ed in CO Says: “If anyone here is dollar cost averaging, I’d suggesting heavily weighting your investing in the beginning of the year. If you can afford it, invest $200 a month for 6 months instead of $100 for 12 months. The vast majority of the time (in recent market history, past 25 years) the market is rising, which means that the price of stock is lower in the beginning of the year compared to the price at the end of the year.”

    There’s a serious flaw in that argument. Putting $200/month from January to June of one year is likely to make you more money than $100/month from January to December, but the flaw is that the same thing is true when you compare $200/month, July-December of last year, with $100/month, July last year to July this year.

    Years are just an arbitrary division of time. Investing $200/month for the next six months tends to beat $100/month for the next twelve, whatever month it is now. The best rule is that the best time to invest your money, usually, is simply just as soon as your budget allows.

  16. i’ve been with sharebuilder for 2 years now and i watch jim cramer on cnbc. all of you have great advice.

  17. Dr. Lee Brown says

    I have had a sharebuilder account now for over two years. I was a newbie when I opened the account and initially liked the $4 per trade but what they don’t make clear to you is if you decide to get rid of a particular stock you pay the $14.95 trade fee (now $9.95 after the ING purchase). PER STOCK, so if you have a small amount of a particular company and want to shift your strategy you end up loosing quite a bit of money. I read the web site closely when I opened the account and I thought the $14.95 fee was only for “Real Time Trades” meaning if you wanted to invest in a stock or EFT right now, not for the automatic investment plan. They don’t make this clear and no where in any of their info does it state this. I made some money on a few stocks but ended up loosing some or just breaking even when I changed my stock portfolio. I think sharebuilder is great for people who want to use it as a retirement vehicle and don’t plan on moving their money around very often. In my opinion they should change the automatic investment plan to just $4.00 when you buy AND sell for the passive small incremental investor and keep the “Real Time $9.95 Trades” for the active investor. The way they have it set up now is no different that many of the other investment houses out there. The ONLY real savings is at the front end $4.00 fee, the back end sale is no different at all.

  18. Many of those here are forgetting that for a $20 fee per month, one gets 20 FREE trades and then $1 buys thereafter. If you can invest $100 or more each Tuesday then its a pretty good value over time.

    An occasional real-time buy at $9.95 say when Ford or Mosaic was low will product a profit. I only do wish that the real-time costs were around $7 to make this deal more attractive.

    Dave in Orlando

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