Updated August 2014.
I’m not a frequent stock trader. The closest I’ve been recently to stock trading is participating in a $1,000 investing competition with some colleagues this year. 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 overall 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’s an example where I actually did try timing the market. After Toyota announced a recall a few years ago, 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, a year later, I was only about $20 ahead. If I had to sell then and pay another transaction fee, 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, not to mention the money used for the “Grow Your Dough Throdown” competition, are held at Capital One ShareBuilder. Here’s my review of experiences with Capital One ShareBuilder.
Opening the account
ShareBuilder still offers some deals for new customers:
- A $50 bonus after your first trade in a brokerage (not retirement) account if you open the account by the end of this year and initiate that first trade by February 17 next year.
- A $50 bonus if you open up your first IRA and deposit at least $5,000.
- Up to a $600 bonus if you open a new account with the promotion code 14GET600M and make a deposit. You need a net deposit of at least $125,000 to qualify for the full $600 bonus.
- You can reduce the fee for opening a 401(k) account by up to $75.
You’ll need to check the ShareBuilder website for the full rules for qualifying for any of these bonuses.
The typical personal information is required when you apply for a discount brokerage account with ShareBuilder, but current customers of Capital One 360 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 simplified its membership tiers. Today, all customers pay the same fees.
Online trades cost $6.95. So you pay this when you place an order to buy or sell shares of a stock or an ETF. So you pay both when you buy and when you sell.
Automatic investments — when you tell ShareBuilder in advance to buy or sell investments on a set schedule — cost $3.95 per investment. You can avoid this fee if the investment is a no-load, no-transaction-fee mutual fund. Other mutual funds, if you don’t buy them through an automated plan, will cost $19.95 per online trade. All trades placed over the phone cost $19.95 each.
If you use ShareBuilder’s “PortfolioBuilder” service, you can set up your entire portfolio for $18.95.
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 they would with other automatic trades.
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. So this “back-end” fee ensures you can’t leave the brokerage for free. Either you sell your investments, generating transaction fees, or you transfer your investments out, generating termination fees.
A nice benefit of having an account with Capital One ShareBuilder is the ability to link your Capital One 360 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 plus the regular transaction fee if your linked account is not held at Capital One 360.
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.
For the most part, I’m happy with my ShareBuilder account. What I’ve noticed, however, is that budget-conscious investors could probably avoid more fees with some of the newer discount brokerages. Since investing with ShareBuilder, I’ve also tried Tradeking and Zecco (which are both now the same company), and found the fees to be more reasonable. For more choices, see these best discount brokerages.
Updated June 23, 2016 and originally published March 21, 2011.