Friday, November 18, 2016

Loyal3: An Introduction to the Stock Market

If you look at the top of my blog on my links bar, you'll see a link to my Loyal3 Lunch portfolio.  It was a gimmick I tried last year to reward myself for bringing my lunch to work rather than buying the mediocre food from the lunch counter downstairs.  I've pretty much dropped that idea--it wasn't changing my behavior all that much, and people weren't reading my posts about the portfolio--but I have kept my account and I have added to it.  I wrote about Loyal3 about eighteen months ago, so I thought it was time to take another look at it.

What is Loyal3?

Loyal3 is an online stock broker whose target market is people who are just beginning to invest in individual stocks or who do not invest a lot of money at one time.  

What Makes Loyal3 Different from Other Brokers?

There are a number of ways Loyal3 is different from other stock brokers:

Loyal3 does not charge sales commissions. 

Most brokerage firms make their money by charging a fee every time a customer makes a purchase or sale.  Generally they charge by the transaction so that the commission as a percent of the price goes down as the size of the transaction goes up--which means sales commissions are very high for small transactions.  Loyal3 does not charge sales commissions so when you buy $10 worth of stock,  you get $10 worth of stock.

Loyal3 does not offer the entire stock market. 

In fact, it only offers stock in about seventy companies, most of which are well-known household names.  If you want stock in a different company, you will have to look elsewhere. This is both a strength and a weakness.  It is a strength because it helps narrow the research field for new investors.  Too often people do not invest because they don't know what to buy.  The Loyal3 stocks, for the most part, are household names 

Loyal3 utilizes batch trading and does not guarantee any price.

 With most brokerage houses you can tell them you want to buy a certain number of shares of XYZ and that you are willing to pay up to $xx.xx per share--or you can tell them to buy (or sell) shares RIGHT NOW.  Loyal3 customers tell Loyal3 how many dollars worth of which stock they wish to purchase.  Once per day Loyal3 goes to market and buys the needed number of shares at the current price.  If they stock you are buying is very volatile, it may cost you significantly more or less than you anticipated. 

Loyal3 does not offer IRAs, Roth IRAs or anything but a basic taxable account. 

 Many people prefer to own stock inside tax-advantaged accounts.  Loyal3 does not offer those account.

Loyal3 sells fractional shares. 

 While the orders placed with most brokerage houses are for a certain number of shares of a particular company, orders with Loyal3 are made by dollar amount.  Since you can invest as little as $10, this means that you often by fractional shares.  

Loyal3 does not offer margin accounts.  

While most brokerage houses allow you to borrow money from them to buy shares of stock, Loyal3 operates strictly on a cash basis.  They link to your bank account and when you place a buy order, if you do not have cash in your Loyal3 account, they withdraw it from your bank, and once it hits their account, the stock is purchased. Recently I ordered some shares on 11/16.  They were purchased on 11/18, and judging by the daily price chart on Yahoo, it looks like there were purchased about 10:30 a.m.

Is Loyal3 for Me?

No business is the right fit for every customer.  Loyal3 is a terrific brokerage house for the beginning or hobby investor.  My Loyal3 account is a toy for me--I hope to make money but I don't have enough invested with them to cause any major problem if my investments lose money.  I firmly believe that for most people (including me) the majority of their assets should be in mutual funds.  However, to me, investing in the stock of companies I can follow is interesting.  Loyal3 allows me to invest a little money without having it eaten up by fees.

Loyal3 does not allow you to name the price you are willing to pay for your shares, or accept for them, if selling,  which, in my opinion, makes it unsuitable for investing large amounts of money at one time.  In fact, Loyal3 will not allow you to buy more than $2,500 worth shares per transaction or more than $5,000 per month per company. 

Loyal3 does not provide investing information or advice.  Since that information is freely available in many places, I consider that only a slight weakness.  The fact that they offer only a limited number of stocks makes it easy to set up watch lists or run Google Alerts on the companies in which you are interested.  


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