New Sites Let You Put Spare Change Into Stocks
It's not easy to squirrel away a little dough in some stocks.
The minimum initial investment for a mutual fund averages $3,370, up more than $700 from three years ago, Morningstar reports. And 100 shares of popular Internet highfliers like Yahoo! (YHOO) ($177 per share at Wednesday's close) and eBay (EBAY) ($199) can run five figures.
What if you just want to put 20 bucks to work?
Now there are at least two online brokers, Buyandhold.com and Sharebuilder.com, that will let investors build a diversified portfolio using small change to buy fractional shares of stock. A third service, Foliofn, will launch within a month. Foliofn will also offer fractional share investments, but it's aimed at high-dollar investors.For as little as $20 and a couple of bucks a trade, Buyandhold.com and Sharebuilder.com offer the chance to put together a customized portfolio. The concept is similar to dividend reinvestment plans or direct stock-purchase plans, in which investors buy stock directly from a company and then put dividends back into fractional shares. But there's a key difference: Many of today's stock-market darlings, like JDS Uniphase (JDSU) and Qualcomm (QCOM), have never heard of dividends, much less anything as old school as dividend reinvestment. What's more, it's impossible to buy those stocks directly from the companies, even though investors are clamoring for them. By bundling together thousands of investors wanting a piece of Microsoft (MSFT) or Cisco (CSCO), the services can keep trading costs down and allocate partial shares to individual customers.
|Gimme Five Bucks' Worth of Cisco |
You can buy stocks in dollar amounts, rather than in whole shares, through these online brokers.
|Site||Minimum investment||Cost||Trading frequency||Additional fees||Stocks available|
|Buyandhold.com||$20 per stock||$2.99 per trade||Twice a day||None||1,400|
|Sharebuilder.com||None||$2-$5 to buy; $19.99 to sell||Every Tuesday||$19.95 for real-time trades||2,000 plus exchange-traded funds|
|Foliofn*||None||$295 annual flat rate||Twice a day||$14.95 for real-time trades||2,500|
|*Expected to launch in April. Source: Companies.|
Buyandhold.comNew York-based Buyandhold.com, launched last November, has the distinction of being the oldest of these dollar-cost-averaging brokers, edging out Sharebuilder.com by two months. As its name implies, Buyandhold.com encourages conservative wealth building over the long term in stable blue-chips. While you're able to buy Microsoft and Cisco on this site, it definitely has an Old Economy bent and espouses the virtues of dividend reinvestment programs, also known as DRIPs. Its roster of 1,400 available stocks is the smallest of the three services, though the choices do include exchange-traded funds like the Standard & Poor's Depository Receipts (SPY), also known as spiders, or the Nasdaq 100 tracking stock (QQQ). Buyandhold.com requires a minimum investment of $20 per stock and charges $2.99 a trade. It trades just twice a day, in the morning and afternoon sessions. In keeping with its philosophy, it promotes saving over frenetic trading by not allowing investors to trade outside those times. Buyandhold.com says it has about 40,000 clients, but won't reveal its assets under management or average account size.
Sharebuilder.comBellevue, Washington-based Sharebuilder.com, a unit of Netstock Direct, gives more play to the New Economy. Though it buys stocks just once a week, it offers some of the market's more go-go stocks. And you're able to trade more frequently than once a week if willing to pay a higher commission of $19.95. Sharebuilder.com requires no minimum investment and has the lowest commissions on purchases: $2 on a systematic plan, $5 for unscheduled purchases and $1 for trades in a custodial account. Sales cost $19.95 and can be executed at any time because "nobody wants to sell not knowing what they're getting,'' according to spokeswoman Cathia Geller. The site currently offers 2,000 of the biggest and most actively traded stocks along with exchange-traded funds. Geller says the firm plans to have 3,000 soon, after adding the next 1,000 largest and most in-demand issues. It's also taking suggestions from customers for new securities to offer. Account sizes range from $20 to almost $40,000, with most customers owning between five and seven stocks.
FoliofnThis soon-to-be-launched site, based in Vienna, Virgina, is different from its two competitors. It operates similar to a wrap program, which charges a flat annual fee to own a basket of securities. Wallman says his product is more like a mutual fund than a brokerage account. It's geared toward the high end of the dollar-cost-averaging investor market. Although there's no minimum investment, the $295 annual fee makes it impractical to invest just what's in the piggy bank. Foliofn customers will be able to build their own customized portfolios or invest in any of about 75 created by Foliofn, which contain 20-50 stocks each. Some replicate the stodgy Dow Jones Industrial Average, while others buy Internet stocks or environmentally friendly companies. Investors will be able to customize these preset baskets of securities at any time. Trades on the 2,500 stocks in its lineup will be executed twice a day, but customers will be able to buy and sell at other times for $14.95. At start-up, the service won't offer exchange-traded funds. Foliofn will keep trading costs down by creating its own market, matching buyers and sellers within its ranks, and eliminating the middleman. The traders will go out into the market when they can't meet buy and sell orders from their own inventory. Foliofn will be a good alternative to mutual funds for investors with substantial funds to play with and a desire for more control over their portfolios than mutual funds offer. Considering that the average domestic equity fund charges 1.44% expense ratio, you'd have to put in close to $20,000 to match the cost effectiveness of a no-load mutual fund, and you wouldn't get the professional money management. Even the Foliofn folks agree that the system wouldn't make sense for customers with only a few thousand dollars who want to trade often.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV