The search continues for my new brokerage account. This week I opened a new account at TradeKing.

My TradeKing Review

I’ve written about TradeKing before, because they offered a great sign up bonus in the past. I didn’t get a chance to open an account then, but I figured now was a great time, since 2009 is all about execution for me!

Account Details

• Account Minimum: None
• Opening Account Minimum: None
• Account Fees: None
• Trading Fees: $4.95 per trade (market or limit), which includes stock and ETF trades. Options have an additional 65 cents per contract. Mutual funds are $14.95 per trade.

TradeKing Details

Their niche. TradeKing focuses on dirt cheap trades. At $4.95 per trade for market and limit orders, the price is tough to beat.

Research and Tools. The tools section is great. I started playing around with the various calculators and was impressed. Although to be honest, I haven’t ventured into the world of options in a long time, and I would have to dig out my old finance books from college to remember all the different terms! However, they do have an education center that could probably refresh my memory.

Dividend Reinvestment. For stocks that offer DRIP programs, you can enroll and dividends can purchase fractional shares.

Fund Availability. TradeKing offers stocks, ETF, bond, and mutual fund trading. I glanced at the list of mutual fund families and saw the majority of the big names listed.

Referral program. If you have friends that like to trade, you can refer them to get $50. Your friends must open the account meeting the minimum funding and make the minimum number of trades to get the referral bonus.

My Thoughts

TradeKing offers tons of information at your fingertips. They have great stock research tools, which could be very helpful for my investment club.

The application process took 5 minutes. Lots of questions about investing experience, but straightforward.

Funding the account wasn’t as efficient. If you opt for ACH transfer, the first transfer “takes at least 10 business days before you can begin trading.” After that there is a 5 day hold on ACH transfers. Other options are to mail a check, or do a wire transfer, but pay the fees.

Withdrawals must be done by either wire (for a fee), or you can request a check. It didn’t list ACH as a withdrawal option, but I contacted the live chat and verified you can use ACH for withdrawals too. Whew! However, you must wait 10 days from the deposit.

Although I’m on a search to deposit old stock certificates, TradeKing won’t be the broker for that. The stock certificate deposit processing fee is $100 per certificate. Yikes!

Overall, the interface looks really easy to use, and for the price, I think it could be a good replacement for my current broker. If only they had a more efficient way to fund the account when you open it. It sounds like it will be a week or two before I’m ready to place a trade.

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My search for a new brokerage account is on… first stop ShareBuilder.

My ShareBuilder Review

I had an old account at ShareBuilder that I haven’t used in 6 years, so I had to open a new one. Although, they wanted me to remember my user name and password from back then… and the name of a pet I didn’t have.

After a quick phone call, I was able to recover the password and the representative even offered me a “welcome back” option to upgrade to the top pricing program for free.

Of course, once again, my new account is opened in my maiden name, despite my attempts to open it with my married name!

Account Details

• Account Minimum: None
• Opening Account Minimum: None
• Account Fees: None
• Deposits: Use electronic funds transfer and the money will be deposited at the start of the next business day. You can also use the “express funding” option to execute a trade without money in your account for a $5 fee for non-retirement accounts.

Trading Fees

Trading Fees: $9.95 per online trade, or you can use the automatic investment program. Automatic trades are placed on Tuesdays. You can select weekly, monthly, or biweekly automatic trade frequencies for the following fees:

• Basic: $4 per investment; no monthly fee
• Standard: $12 per month; includes 6 investments; $2 for each additional
• Advantage: $20 per month; includes 20 investments; $1 for each additional

When I filled out the application and selected the pricing program, it did indicate the standard program would be free for the first month; something to watch for if you sign up for an account.

ShareBuilder Details

Their niche. ShareBuilder focuses on dollar cost averaging using the automatic investment plan. You can also buy fractional shares. This would be helpful for my sister-in-law who initially didn’t deposit enough money into her Roth IRA to buy her first share of VTI. With ShareBuilder, she could have at least gotten a fraction of a share.

Dividend Reinvestment. Because of the ability to purchase fractional shares, you can opt for reinvestment of dividends and capital gains.

Fund Availability. Mutual funds are limited to ING funds, but you can buy ETFs and stocks (7,000 available).

Gainskeeper Tracking. I’m excited about the gains and losses tool. One of the big downfalls to having a combination of stock certificates and DRIP programs is the complete lack of tracking the cost basis. It would be nice to consolidate it in one tool, and have the dividend reinvestment portions tracked automatically.

My Thoughts

The application process took only minutes. My information was prefilled from the existing account, so it may take a little longer for a brand new account. I’ll sign my husband up and see how long it takes to open a brand new account.

In addition, you can link your ShareBuilder account to your ING account so you can view and transfer money between the accounts. I linked my accounts and it took less than 30 seconds. I can now see my ShareBuilder account from my ING account page, which is nice.

The ShareBuilder account isn’t going to be the cheapest solution (at $9.95) if you like to place market orders. It’s also not the best solution for active traders.

However, it’s the perfect type of account for my younger family members just getting started, like my sister-in-law. The availability to purchase ETFs, like VTI, once a month for $4 will be perfect…. it might even be a good option to start some custodial accounts for my kids.

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Many investors get excited when a company issues a stock split. What is a stock split? Is it good or bad? How does it affect your investment? Let’s take a look at how a stock split works and what is in it for you!

What is a stock split?

A stock split is when a company changes the number of shares outstanding. At the same time they adjust the price of the shares to offset the change.

What kind of stock splits are there?

A common split is 2:1, however, there can be 3:2, 3:1 and many other combinations. They can also reverse split, in a 1:2 for example.

What does it do to the value of your investment?

Nothing. If a stock you own is trading at $20 per share and splits 2:1, the price will be $10 for each share. If you owned 50 shares, you will now own 100 shares. Your investment is worth $1,000 both before and after the split.

How does a split affect the cost basis?

In the example above you had 50 shares at $20 each; let’s say the purchase price was $15. When the stock splits, you have 100 shares at $10 each and the cost basis adjusts to $7.50 per share. No matter what happens to the share price or stock splits, your total investment will always be $750 (assuming no dividend reinvestments or commissions).

Why do companies issue splits if you still have the same amount of money?

While the value remains the same for each investor, there’s a certain amount of playing to people’s connotations of the new price that companies have found valuable.

• Psychology of lower price. While it is unrelated to the performance of a stock, people look at a lower price of a stock as favorable. Investors may believe that after a stock splits, it will return to the pre-split price.
• Psychology of more shares. When investors “double” the number of shares they own, they are likely to pass on positive vibes. This can create buzz. In addition, if the pre-split price was an all-time high, there was likely a lot of positive vibes already out that the company was doing well.
• Liquidity. Lower prices often result in more activity. Companies like the increased liquidity because more people are able to buy and sell the stock.

What if you buy a stock after the record date for the split?

As long as you buy the stock before the date the split takes place, your stock will split too. The record date does not have an impact on your split.

Do all companies issue splits?

No. A good example is Berkshire Hathaway which was trading at $132,000 yesterday.

Article featured in: Carnival of Personal Finance.

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How to start an investment club from start to finish. We had our monthly investment club meeting this week. We formed the club about five years ago and have come a long way. If you are interested in starting a club of your own, here’s some of the information from the handout at our first meeting to get you started.

Philosophy and goals (Rules and Expectations)
Use the Official Guide from the NAIC: Starting and Running a Profitable Investment Club by Thomas E. O’hara and Kenneth S. Janke. This book provided the framework for getting our club started. It was very helpful to teach us the skills we wanted everyone to learn and how to run our club. We focused on the chapters on Investment Philosophy and Security Analysis first, but covered them all eventually.

We joined the National Association of Investment Clubs (NAIC) at first, but are no longer members. It included educational seminars and opportunities through out local chapter that were beneficial in the beginning.

Goals of Investment Club

• Double our money every 5 yrs (14.9% CAGR)
• Education, learning and participation

Principles

• Evaluate stocks based on NAIC stock selection guide method.
• Invest regardless of market conditions. (Dollar-cost averaging)
• Reinvest all earnings.
• Invest in growth companies.
• Diversify to reduce risk.

Long term Approach. A short-term, speculative approach to investing has not been successful. Investment clubs that have had a long-term investment outlook have done well. However, because of the learning curve and initial expenses, clubs may lose money at first. See our investment club portfolio and returns.

Responsibility. All club members will investigate and analyze stocks and make periodic reports.

Time commitment. During the first year, three or four hours a month will be needed. It will go down to about an hour of preparation after the evaluation techniques are learned.

Club business

• Discuss Operations and Adopt Bylaws
• Decide Amount of Monthly Deposit
• Elect Officers
• Individual Assignments:
  • Prepare a report of a corporation on the NAIC Stock Check List. (ch. 7)
  • Prepare a report on the same corporation on the NAIC Stock Selection Guide. (ch 8-10)
• Treasurer Assignments:
  • Obtain tax ID number
  • Open brokerage and checking account

Helpful Internet Resources

• NAIC site
• Local Chapters
• Software: Bivio
• Broker: Scottrade
• SSG tutorial: Investment-Clubs
• Tools: IClub
• Stock data: Stock Central

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