Cheap Investing

After being away from the stock market for quite a while, I've decided to get back in the game. In the past, I used Sharebuilder as my means to purchase stock. It's simple to use, and allows you to buy fractions of shares in companies. For example, if you only have $50 to invest, but the company you want to buy costs $100 per share, then Sharebuilder will sell you 0.5 shares in the company. It's also an inexpensive way to invest - costing as little as $1 per purchase (depending on the type of account you set up, and how many times per month you purchase shares).

The Sharebuilder model requires you to set up a regular investing schedule, which will draw money from your checking account and automatically invest it into the companies you specify. One downside is that shares are always purchased on a regular schedule (always on a Tuesday, at the interval - weekly, twice a month, monthly - that you specify). This does not give you the opportunity to time the market. Of course, many investment gurus tell you that attempting to time the market is a futile effort. Sharebuilder promotes dollar-cost averaging into the market, and when you do this, you don't care about a fluctuation here or there in the market - therefore timing the market is not even a consideration.

With that said, you may be surprised to learn that I've decided to take my business to a new brokerage. While Sharebuilder is inexpensive, and convenient, nothing can beat a brokerage that is free. That's what Freetrade (from Ameritrade) brings to the table. They are a commission-free online brokerage, offering 20 free trades per month. The nice thing is that limit orders are free as well - many brokerage houses charge more for limit orders than market orders, so this is a nice feature.

All accounts opened at Freetrade are margin accounts - and thus the Freetrade business model is revealed. They're hoping that most - if not all - of their clients use margin to purchase more shares of the company into which they're investing. Of course, this is not required - you can put cash in your account and use only cash to invest (this is what I will be doing). They also keep costs extremely low by offering a no-frills web site and email-only support. In setting up my account, I had to contact customer service via email a couple of times. I was amazed with the response time. I would expect perhaps a 24 hour turn-around time for my requests, and for most companies, achieving a 24-hour turn-around time would be stellar. In almost all of my email requests, I received a response in less than 15 minutes! In my opinion, that's pretty amazing.

The only "catch" to opening a Freetrade account is that you have to fund it with $5000 cash (or transfer $5k worth of shares from another brokerage) before it is activated and available to use for investing. I basically moved this cash from my savings account to the Freetrade account, but don't plan to use it for investing. I will set up a regular deposit from my checking account for investing purposes, and move the initial deposit back into an interest-earning savings account shortly thereafter.

Now, it's time to sit back and watch my money work for me once again.