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Posted By Jim On 11/25/2008 @ 7:15 am In Reviews | 17 Comments
Sharebuilder  built its reputation buy having low commissions ($4 a trade) and completely buy-in into the dollar cost averaging mantra. Much like how you have regular retirement account contributions, Sharebuilder helps you cheaply buy into positions with individual companies (back then, ETFs didn’t exist) on a regular monthly schedule. They made a good name for themselves doing this in an era when trades cost at least twice that.
Unfortunately, I think the days of Sharebuilder  may be numbered as brokerage firm commissions get lower and lower. TradeKing  now offers $4.95 commission trades, a mere 95 cents more than Sharebuilder with the option of trading whenever you feel like it. That being said, Sharebuilder still offers tools like the ability to buy fractional shares, regularly scheduled transfers and orders – all of those features take away the hassle of managing a dollar cost averaging strategy yourself.
If you want to dollar cost average, Sharebuilder is the best brokerage to work with.
I mentioned some of the features that assist in dollar cost averaging and they are:
Buying fractional shares: To my knowledge, no other brokerage allows you to buy fractional shares of stock. Mutual fund companies, like Vanguard, will let you buy fractional shares of their mutual funds, but I don’t know of any that will let you buy half a share of Google. This lets you designate $100 a month towards Google (or anything else) and focuses on the dollar amount, not the share price.
Scheduled trades: You can schedule your trade on any Tuesday of the month and each trade is a mere $4, which is still the cheapest commission available on a trade. You can participate in plans that can lower the per trade value (like a Standard plan that costs $12/mo and gives you six trades) but $4 is the base. Another nice feature of these schedule trades is that it can deduct the funds directly from your bank account. You don’t need to transfer the funds, wait, and then buy.
Free dividend reinvestment: This is another feature that plays into the DCA mantra of reinvesting dividends on the investments that pay them out. This reinvestment feature is free, which is especially nice.
No account minimums or inactivity fees: In helping with the small time DCA investor, there are no account minimums or inactivity fees that were so prevalent with many brokerages. This feature is more widely available nowadays but back when Sharebuilder started, it was unheard of.
The same things that make Sharebuilder good for DCA also make it bad for typical traders. There are no real time stock quotes, not a problem if you schedule your trades ahead of time, and there is no way to set a limit order. All of your trades are made at market prices, which can be a good thing or a bad thing. Another negative is that all sales are made real time with a commission of $9.95, there’s no concept of “scheduled” selling. Finally, they don’t offer a lot of market research.
Ultimately, Sharebuilder is a great DCA brokerage and a weak everything else. If dollar cost averaging is your thing, I think that Sharebuilder is a great option. If not, it’s better to go with another firm (try one on SmartMoney’s 2008 Best Broker listing ).
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 SmartMoney’s 2008 Best Broker listing: http://www.bargaineering.com/articles/smartmoneys-2008-best-discount-brokers.html
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