Conventional wisdom since I've been investing has been that ordinary investors should put their money into mutual funds and buy the market rather than purchasing individual stocks. That advice is based on three factors:
- Many small investors lack the time, desire and/or know-how to adequately investigate the value of a company and therefore could purchase shares at the wrong price point or hold them when they should sell;
- Investments should be diversified, and small investors are unable to invest in enough different stocks to be diversified and
- The sales commissions charged by traditional brokers took far too large a piece of a small investor's investment.
A new website, Loyal 3, seeks to address the last two items. Loyal 3 sells stock in 64 different companies to individual investors You can purchase fractional share and therefore can invest as little as $10 in each company. More importantly, Loyal 3 does not charge to buy or sell stocks. If you want to invest $100 in Coca-Cola, you can do that, and you will pay no sales commission.
Is there a catch?
Yes, sort of. Loyal 3 does what they call "batch trading". If you call your full-service broker and tell him to sell your stock in xyz, he'll do so almost immediately. If you tell him to buy PDQ, it is yours. Loyal 3 waits, and places one order per day for the stock. If you are trying to market time, Loyal 3 is not for you. Also, they only offer 64 stocks, so if you want something else, you have to go elsewhere.
Have I tried it?
Unlike most of the other products on which I have reported, I have not tried Loyal 3. I am planning to open accounts for my kids and my nephew and to give them stock for Christmas next year. I'll pick something like Disney or McDonald's and couple the gift of stock with some merchandise. The low initial investment ($10) and lack of sales commissions make that possible.
I think conventional wisdom is probably right to discourage ordinary investors from putting too much money into individual stocks. However, I find individual stocks far more interesting than mutual funds. While I would stick with mutual funds for the majority of my investing, I think Loyal3 offers small investors the chance to invest a little fun money with companies they find interesting.*Part of Financially Savvy Saturdays on brokeGIRLrich, A Disease Called Debt and Shoeaholic No More*