I’m not a frequent trader. With my long-term view of investing, looking at stocks every day and executing costly trades does not make sense for my approach to my own finances. My strategy does not involve trading stocks or ETFs, timing the market in search of better returns. That being said, once in a while, I set aside a relatively small portion of money to test some theories. Here is an example from about a year ago: After a company received some bad news, I purchased about 10 shares of its stock, with the thought that the recalls were temporary problems that shouldn’t significantly affect the overall value of the company over time.
The stock price has recovered since then, but after the fee to buy the stock, I’m only ahead about $20 right now. If I had to sell, my profit would be even less. These fees cut into profits and should be minimized as much as possible. If you want to play in the stock market, it makes much more sense financially to use a discount brokerage than a full-service operation, due to the smaller fees. The accounts that hold my small investments in this company, as well as similarly small investments in an ETF and two other companies, are held at Capital One ShareBuilder. Here’s my Capital One ShareBuilder Review.
Opening the account
It has been a while since I’ve opened my account at ShareBuilder. I did so before the company was acquired by ING. ShareBuilder offered a variety of bonus codes to invite new users to join. In fact, they allowed the same individual to open several accounts, earning a bonus for each. The Internet went crazy, and there were reports of people opening as many as 50 accounts, earning a $25, $50 or $75 bonus for each account. This was apparently, not against the terms, but some customers who took excessive advantage of the offers were asked by the company to consolidate or close their accounts.
The typical personal information is required when you apply for a discount brokerage account with ShareBuilder, but current customers of ING Direct will have a streamlined process where some of their information is ported directly.
Many discount brokerages offer roughly the same set of tools. Each company may have a few bells and whistles, but for the most part, this type of service is a commodity. Many of the resources offered by discount brokers, like charting and analysis tools and access to some analyst reports, can be found in other locations for free. When it comes down to it, the most important aspect of a discount brokerage is the cost. Paying a $20 fee to sell $100 worth of stock immediately and significantly cuts into any profit you may have had or amplifies a loss. For this reason, look carefully at all the costs involved in buying and selling.
ShareBuilder has two tiers of membership, Basic and Advantage. The Advantage plan requires a monthly fee of $12, but with this membership, you receive 12 free trades each month, if those are done by automatic investment. Each automatic trade in excess carries a fee of only $1. Real-time online trades, on the other hand, are $7.95. Real-time trades are executed as soon as possible after you place the order. Automatic trades are less expensive because they are bundled together with other customers’ automatic trades and effected only once a week. In other words, ShareBuilder gets the benefit of combing your sale of 30 shares of Microsoft with another investor’s purchase of 30 shares on Microsoft. ShareBuilder does not need to go into the open market to settle these trades, so everyone gets a better price, including ShareBuilder who still collects the same fee as the would with other automatic trades.
With the Basic plan, automatic investments carry a fee of $4 and real-time trades are $6.95.
Capital One ShareBuilder offers real-time market orders, limit order, stop-loss orders, and several types of options. Some customers might also qualify for margin trading.
One of my favorite features is the lack of an inactivity fee. Most brokers want to make money off of you, which they can only do if you trade. The more actively you trade, the more money the broker earns from you. When they are not earning money from you through trades, many companies want to find other ways to make holding data for you on their servers worthwhile. That’s the beauty of the inactivity fee from the broker’s perspective. Active trading is not generally a sound investing strategy, so buy-and-hold investors are discouraged when charged a fee just for leaving an account open. Perhaps it’s wrong to assume that any company should hold money or investments for free, but since some do, those who charge fees appear to be unfair.
As long as there still are brokers who don’t charge fees for an inactive account, I’ll continue seeking them out for my business.
None of the above can be said without pointing out there is another important fee that often goes unmentioned: the account transition fee. If you decide to close your account and transfer your investments to another without selling and triggering tax ramifications, Capital One ShareBuilder does charge a $75 fee. If you’re not closing your account and transferring only a portion of your assets, the charge will be $15 per security, up to $75.
A nice benefit of having an account with Capital One ShareBuilder is the ability to link your ING Direct savings and checking accounts with your ShareBuilder account. This ensures that you can easily and quickly transfer money from your ING Direct account whenever you want to trade, even if you don’t have cash in your ShareBuilder account. You can link other bank accounts as well, but this “Express Funding” service costs $6.95 if your linked account is not held at ING Direct. Sometimes it’s better not to have cash available because you’re prevented from making rash purchasing decisions. Active traders or those who want to aim for a certain time on a certain day do not need to worry about having cash in their ShareBuilder account if they are a customer of Capital One 360.
Updated February 19, 2014 and originally published March 21, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.