ShareBuilder looks good for the passive investor.

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ShareBuilder online brokerage has a new owner. They are now part of the ING Direct group that specializes in savings with good earnings. Now you can link your savings account to your ShareBuilder account for improved returns. ShareBuilder is always ranked in the top 5 of online brokerages because it has reasonable fees and commissions, a readily accessible trading system and good customer service rather than support.

You do not have to place a minimum amount of money with ShareBuilder in order to open an account and they do not charge a maintenance fee. ShareBuilder offer a unique service among brokerages with their automatic investing and reinvesting. The target market is the passive investor. The small saver who has a regular amount of cash salary deducted and wants it all invested but doesn’t want to self-manage the portfolio. So if you are looking to make ALL of your savings work but can’t be bothered watching the Dow Jones index or making limit orders then ShareBuilder is for you. ShareBuilder will give even the small savers access to the high-priced shares with fractional shares. For example if you wanted a piece of Microsoft but only had a hundred dollars saved, ShareBuilder would place a part of a share in your portfolio and you would earn pro-rata dividends and capital growth.

All of the savers’ portfolio is in stocks or other investments all of the time because of automatic investment and reinvestment of earnings by ShareBuilder and the investor is not involved in any of the decisions or actions. The passive investor will probably be attracted by the ShareBuilder headline price of $4 trades but the more active day trader would be more wary of these ‘window’ trades. This commission is only available on buys and once a week on Tuesdays. You have no influence on say the limit price or even the timing of the sale. When you place a sell transaction the commission is $9.95. While this is about the market average, day traders and active stock pickers can do better at other discount brokerages.

ShareBuilder offers three alternative savings plans to customers. They are the ‘Basic’ the ‘Standard’, and the ‘Advantage Plan’. The Basic plan is free, does the $4 automatic stock buys and makes ShareBuilder the best value choice among the competing savings companies. The Standard Plan has a monthly fee of $12 and gives 6 free automatic investments plus additional ones at $2 each. The Advantage Plan is pricier still at $20 per month, but with many more free offers; 20 automatic investments and further investments for $1 each. Real time and options trades are a single price with ShareBuilder no matter which plan you opt for. ING mutual funds are also on offer through free trades by ShareBuilder.

With Sharebuilder the saver is buying more into a strategy than developing their own. The strategy is automatic investment and zero cash holding. Their rates for automatic trades are discounted so as to encourage the passive investor while fractional shares ensure all of the money is working all of the time. In this way, wealth is built up over the long term. The price you pay for this passive investing ShareBuilder strategy is all front-loaded. For example if you looked to put $100 each month into Exchange Trade Funds $8 per month or $96 in a year is a big cost and your ETFs need to earn over 8.6% before you start to show a profit. There are better ways to get into mutual funds but it does require effort on the part of the investor. This price is just too high for the savvy trader.

Customer service at ShareBuilder is just that. If you want customer support with lots of high-tech platforms and research data to self-manage your investments then there are many cheaper online brokerages out there.

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The most simple explanation to why we are in this current financial crisis is because of this so called “sub-prime mortgage” mess, and everything that followed it. Now, what does that mean? Our Federal reserve is responsible for setting monetary policy, in other words they indirectly set the rates banks use for lending. The banks then sets the standards for individuals to borrow. When the Federal reserve dropped the prime rate of lending to banks from nearly 7% to 1% in the early 2000’s, this set off a lending frenzy by the banks. The banks new that their was very little cost to their lending, so they could make money off of anyone, even those with poor credit, or so they thought (as long as demand kept increasing). Wall Street bought in on the action too, packaging up these sub-prime loans and selling them to investors, whom in turn were making a killing off of them in the beginning. As more and more people were able to qualify for loans (when they shouldn’t have been able to), they drove the prices of all homes, because as the supply of homes grows smaller, all other home prices would go up as people competed to buy them.

Then, when these people with poor credit and sub-prime mortgages started to default on their mortages, the investments started losing money, and people started selling them off in record numbers. Moreover, the banks profitability began to plummet as well. When wall-street saw this happen, everyone started pulling their money out of the market, to protect from losses.

Now, at the same time all of this “sub-prime lending” was going on, you have a bunch of good credit homeowners, who saw their home prices sky-rocket, and they began taking out home-equity loans, and spending that money on anything and everything, thinking their home value would continue to rise. Basically, they were taking artificial gains and spending it, and in turn artificially inflating companies values. When investors realized too, that these companies that were making a ton of money, were only doing so because of this “artificial boom” and that the future wouldn’t be so bright, as future profit estimates dropped, doom and gloom overtook the market.

To compound the problem, normally rational people, whom didn’t participate in any of this, decided they too should protect themselves, and so they started pulling their money out of the stock market and hoarded it, or bought up government bonds, and they still are.

Now, the banks, in trying to correct their bad investments, have tightened credit standards on consumers to the point that people aren’t able to continue to maintain their lifestyles. The banks have not only tightened consumer lending, but also business lending. With consumers unable to spend, and businesses unable to borrow, the opposite phenomena is occurring. Businesses are laying off people, as they don’t need to produce as much to meet demand, and they are stopping expansion plans and new product development as well.

When will this all work itself out? Well,  the market is irrational right now, just as it was when we were on this mega spending/lending frenzy. The market will correct itself in time, and those people hoarding their cash will eventually buy back in, helping unfreeze credit markets and get people buying products and services again, and allow businesses to pick back up spending and hiring. The last major recession in the early 2000’s lasted nearly 3 years, and witnessed a near 50% decline in value. My opinion, is now is the best time to buy as the market is still unreasonably low due to consumer confidence, and these companies are worth more than they are selling for.

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