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Friday, December 27, 2013

A Different Kind of Present

This year, I gave my sons a different kind of Christmas present. I gave them seed money, provided they open an account at Loyal3.com and committed to buying $30 in shares (of any stock that Loyal3 trades), every month, for 30 years. That's about a dollar a day. They all seem to be fired up to give this a go! I'm a happy dad...

My sons are like most young people today. They don't like us to tell them what to do. They don't particularly want our advice, either. They want to make up their own minds. They want to be independent. They want the right to choose and even the right not to choose. They seek and accept advice from anybody who's not their parent, a teacher, or another "older" person that don't get young people or the struggles they face. 

I think this is all good. I want my kids to be strong and decisive and free. I want them to choose their own paths and to chase their own dreams. I'm sure if they do, they'll be happier for it and so would be I. Of course, I know some things they don't (seem to) know yet – things I've had the privilege to learn along the way, things I've learned from experience, and things I've learned because I had turned to experts for advice. 

Dennis Miller is one such expert. I've recently discovered his free weekly newsletter, Miller's Money Weekly. In the most recent issue, Ten Pillars of Financial Independence, Dennis writes:
"Wealth is not gauged by how much money you make, but rather how much you keep. Accumulating wealth, regardless of your age, gives you options and independence. It's sad when people toil in jobs they hate because they need the money. Anyone in that position finds their employer controls their time and, sad to say, much of their happiness (or lack thereof)".
I dearly want my sons to learn this lesson and not to wait as long as I did to learn it!

How I learned

In 2002, I realized that I was essentially financially illiterate. I had secured a new job in a new country and I learned about 401(k)'s and mutual funds. I learned that depositing money in a U.S. bank account would cost me money, not earn me interest. I knew about stocks, because my father dabbled in trading stocks on the JSE, but I had to google "mutual fund" to learn what mutual funds were and how investing in them differed from investing in stocks. My wife and I took a financial course, which introduced us to financial planning and investment vehicles like IRAs and Roth IRAs. 

I started reading articles about investing, looking up terms I didn't understand as I went along. In the beginning, I spent more time looking up terms than reading articles. I learned about the disadvantanges of mutual funds and even those of index funds

Responding to marketing material about market-beating profits by investing in low-risk, high-return blue chip stocks, I subscribed to Louis Navellier's Blue Chip Growth newsletter. Soon after subscribing, I was inundated with subscription offers from all over. (Imagine that! Not only do investment newsletter publishers sell you their products, they also make money selling your address to their competition!). Despite my disapproval of being promoted as someone with an interest in investment newsletters, I've been a subscriber of Blue Chip Growth ever since. In my view, the newsletter not only provides great stocks picks and sound investment advice, but also excellent market commentary. 

After receiving my first edition of Blue Chip Growth, I was faced with a major challenge: it contained a buy list of about 40 stocks! How could I hope to earn market-beating profits if I couldn't buy every single stock in the buy list? In my view, only buying a subset of the buy list stocks was not an option, since then I would have had to choose stocks myself, which is what I wanted to avoid in the first place.

With $10,000 to invest (at the time), 40 stocks averaged to $250 per stock. A few stocks in the buy list were priced near or above $250 per share. And, what about commissions? Buying 40 stocks at a commission of, say, $7 per stock, would have required $280, or almost 3% of available funds. So, instead of $250 per stock, I could spend only $243 per stock... 

I quickly realized that I wanted an online brokerage that allowed dollar-amount investing (and therefore, fractional shares) and no (or low) per-transaction commissions. What was the chance that something like that existed? Well, with some additional googling I landed at FolioInvesting, which touted themselves as combining "the advantages of mutual funds with owning individual stocks". 

FolioInvesting's pricing model has changed over the years, but they still provide commission-free trades in two daily trading windows, and, if you prefer, market trades for $3 per transaction. In my view, the annual fee of $290 is well worth paying for just to get unlimited commission-free window trades. It is really liberating not to have to think about commissions!

Of course, investing in equal dollar amounts would allow me to maintain a balanced portfolio. For example, today I can buy a fraction (0.22372) of a share in Google at $1,117.46, for $250. And I can buy 11.49954 shares of Micron Technology at $21.74, also for $250. This way, I'll be invested exactly equally in Google and Micron Technology. And, with no commissions to worry about, I could rebalance my portfolio frequently, say once a month, if I choose to do so. 

Earlier this year, I created a new account with FolioInvesting specifically for my DivGro portfolio. I like having a separate account for each strategy I follow, test, or develop. With FolioInvesting, you can have as many accounts as you want, for the $290 annual fee. To simplify blogging about DivGro, I decided to buy only whole shares by using market trades. This costs me $3 per transaction, which is insignificant enough when I buy lots of about $2,500 per stock. 

I've been using FolioInvesting for more than 10 years now, and would not hesitate recommending them to new and seasoned investors alike! Very importantly, as I learned after doing my taxes in the U.S. for the first time, you can import transactions from your accounts into TurboTax very simply. That alone is priceless in my book!

By the way, I would also recommend Blue Chip Growth and several other investment newsletters I've subscribed to along the way. Just be forewarned that you'll receive several trees worth of subscription offers in the mail, once you become a subscriber to one...

Why Loyal3?

I don't have all my investment accounts at FolioInvesting. I also have accounts at Scottrade, TradeKing, and Interactive Brokers. Scottrade offers a great platform and access to analyst ratings and reports from S&P Capital IQ, Thomson Reuters, and MarketEdge. I've landed with TradeKing after it merged with Zecco, which originally offered zero commission costs. I trade stocks and options with TradeKing. I'm new to Interactive Brokers, which offers low commissions for both stock and option trades. I want to use Interactive Brokers for a new blog I'm planning for 2014.

Loyal3 provides fee-free investing. They've developed a technology platform to allow people to buy stocks in popular companies through Facebook or the web, investing as little as $10 at a time. Anybody that can buy a product on the web, can buy stock. 

Fee-free sounds too good to be true, right? Zecco didn't last long... 

Well, Loyal3 developed an interesting business model. They provide services to companies, such as raising capital, lowering costs of individual shareholders, and increasing brand engagement. Companies pay Loyal3 for their services, and indirectly for the fees associated with trading their shares. 

There are some limitations with Loyal3, but none of concern to my sons (and, I'm sure, many other beginner investors): 
  • Currently, Loyal3 offers only 56 stocks. These stocks are many of the most "liked" brands on Facebook, including Amazon, Berkshire Hathaway, Google, and Twitter, as well as dividend growers such as Coca-Cola, Intel, Wal-Mart, Microsoft and McDonald's. 
  • All purchases are in dollar amounts and will include fractional shares. 
  • Maximum purchases are limited to $2,500 per stock per month.
  • Selling shares involves a combined order process, typically executed only once a day. This means that the price you receive will differ from the market price of the shares at the time you place your sell order. 
  • There's no support for short selling. After all, Loyal3's mission is to promote brand loyalty. Neither do they offer limit or stop trades, margin accounts, options, or other complex trading scenarios.
I've learned a lot about investing over the past 12 years. I could tell my sons a lot about investing and what to invest in. I could teach them sound investment principles. I could express an opinion about what percentage of their earnings they should be investing. I could show them the power of compounding using a future value formula.

None of the above would be as effective as actually experiencing it themselves. So, by nudging them along with a little seed money, my hope is that they would play along and choose to see through the crazy commitment of investing about a dollar a day for 30 years. Hopefully, in time, they'll realize that they've learned a lot in the process, too. 

Later, I'll hint that a dollar a day sounds good, but that $10 a day would be better. And, some day, that $100 a day would be best... 


  1. Enjoyed reading this post. Your kids are fortunate to have a father that knows about investing and giving them little nudges. I plan to do the same when I have kids.

    1. Thanks, FFdividend!

      It is a tricky thing. When kids are young, they can take in a limited amount of detail. When they get older, they want to do their own thing. Only much later, when they've found their own feet, they have the capacity and interest (hopefully) to learn.

      Thinking back on how I felt about my father's stock trading activities, I remember that I had just a mild interest in what he was doing. He spent a lot of time in his study trying out things, and hours on the phone talking to a broker friend. He paid us to capture stock price data from daily newspapers (it was before the internet!) so he could develop and test models.

      I'm a little older now than he was then, but I can imagine that my kids might be in the same phase -- with only a mild interest in what I'm doing...

  2. Great post! I work at LOYAL3 and would love to hear more about your experience. However, I couldn't find any contact info on your blog. If you would be open to chatting, I can be reached at courtney@loyal3.com. Thanks and I look forward to hearing from you!

    1. Hi Courtney -- thanks for stopping by! I'll contact you soon...

  3. Informative ideas , I was enlightened by the info . Does anyone know where my company might acquire a blank us bank account form to edit ?

    1. Greetings Gilbie Rivas . I used a fillable US Bank Account form at this site http://pdf.ac/9bKYFK . By the way, this article has plenty of useful information. Thanks for sharing!


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