My First Stock Purchase

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Publish date February 27, 2009 Views: 547 Comments: 14

So, I got this credit card that deposits 2% cash back into a brokerage account. I started using it for all my daily purchases, paying off the statement balance each month. At the end of January, my points on the card were redeemed for the first time, and a few impatient days later, I had $38 dollars to start investing.

I could just set up a transfer from the brokerage account to my regular checking account and use this free money for other purposes, but I’ve always wanted to try investing in the market, and because it’s free money, I’m allowing myself to do so.

I figured that I could buy 3 shares of an ETF called PBW, which is a collection of companies specializing in renewable energy, which seemed like a good fit because:

  1. I didn’t feel like I have the time needed to do the right amount of research to buy shares in only one company
  2. I’m an aspiring hippie
  3. I knew that the American Recovery and Reinvestment Act of 2009 was in the works, and it set aside a serious amount of money for renewable energy projects

Here’s the funny part: that $38 dollars that Charles Schwab gave me for free? It was double the amount that they should have given me. So a few days later, I noticed in my portfolio that $19 was missing. It took me three tries to get the credit card and the free brokerage account linked in the first place, so this was extremely frustrating. I assume it was an honest mistake on Schwab’s part, but I had gotten myself in the position where I was investing with my own money, and not with free money, anymore.

I still think that this card/brokerage setup is a good idea, but if you’re setting this up for the first time, keep a close eye on the amounts being moved around.

Incidentally, I’ve only lost $17.66 on my investment so far, including the $12.95 commission. I can laugh about it, because it’s free money.

Article comments

14 comments
Anonymous says:

I have a Schwab brokerage account– though these days I normally use my Interactive Brokers account, which charges $1.00 (not a misprint) for a real-time US trade (and somewhat higher, but still very reasonable, rates for Hong Kong, Japan, Europe, Canada, and Australia trades). I like Schwab, too, though, and have considered getting their credit card because 2% cash-back beats the 1% cash-back my current card gives me.

But I have to say, it doesn’t make a lot of sense to spend $12.95 (or $8.95 in my case, because I have over $100k in my Schwab accounts, so I get a better price on trades) to purchase less than $30 of stocks. Just in case you haven’t figured it out, you know you COULD combine some of your own money with that $38– it’s still, in that case, a free transaction plus $20+ worth of stock. Or you could let the money build up for a while before purchasing anything. But why squander $12.95 on less than a $30 purchase?

Or, keep in mind, one of Schwab’s great benefits is they offer a “CD marketplace”– so you can buy CDs for virtually any time period, from a wide range of banks, right within your Schwab brokerage account. So you could buy a $1000 CD each month and let your cash-back provide $38 (or whatever) of the seed money.

(Or, obviously, as you say, you could simply transfer the money out of the account).

Anonymous says:

You are killing yourself buying so small of amounts with a high purchase cost. at $25 to buy/sell. With 3 shares, you need the ETF to gain $8.34 to just break even. Looking at the ETF price now you are asking it to more than double to just make your costs back.

You are better off transferring that money to ING or something with the level of money you are working with.

Also, losing free money still sucks.

Anonymous says:

Good choice! Take a look at PBD. Somewhat similar but not so solidly in the “wind market” and with some international holdings. Overall I think it’s been doing slightly better than PBW.

Anonymous says:

It lost a lot of value in the last year since I bought it, but I spent my “free” money on PWE. It’s a Canadian oil trust. It dropped from high $20’s to about $10 due to drop in gas prices, but I didn’t buy it for growth, I bought it for the dividends, since at the time it was offering about %12 annually, paid in part each month. Funny thing is, despite the HUGE drop in stock price, the dividends remained about the same, which means they’re paying %24 in dividends on a $9 stock. Don’t know how long they’ll be able to keep that up, and I guess $9 would make this stock really cheap in the mean time… Just a tip 🙂

Smithee says:

I agree that $12.95 is a lot. I think ETFs are more expensive than regular stocks.

My other option would be to move the money from the brokerage account to my checking account, and then the same amount from my checking account to a different brokerage. I might decide the hassle is worth it in the future.

Anonymous says:

I know it’s free money, but $12.95 for a stock trade ( buying and selling – that’s $26 bucks ) – yikes! Zecco runs $5 a trade, and I think Trade King is about the same. Even with free money, I’d have trouble paying almost triple the price for trades.

Anonymous says:

Aspiring hippie… I like that. I’m a reluctant treehugger myself. PBW is a solid choice, especially with the current administration’s policy towards alternative energy.