Friday, August 15, 2014

I Finally Did It

A few months back I wrote about some alternative brokerage options.  My portfolio is now getting to be pretty hefty at over $160k and I've been looking at possible brokerages to further diversify my holdings.  There's no sense in having everything held at just one brokerage firm just in case the brokerage has any issues that keeps you from having access to your investments while the problems are sorted out.  I discussed a few different options each with their own advantages and disadvantages.  I've been pretty interested in Loyal3 for a while now and finally decided to go on and open an account.  The biggest positive with Loyal3 is that all trades are fee free.  That's right no commission.  Although I've grown more comfortable with the long term viability of their business model it's still something to watch closely for potential changes in the fee structure.

I'm starting off pretty slowly with my investments through Loyal3 but I really like it as a way to dollar cost average into positions.  The fact that I can make the purchases using my credit card and earn cash back or do other travel hacking with capital that I'd invest anyways is just a bonus.  Actually a 1% cash back bonus with the current credit card that I'm going to use to make the purchases.  I set up some automatic monthly purchases in some pretty well known companies that should turn out to be great investments over the long term.  The following are the companies that I have set up for automatic monthly purchases and the corresponding purchase amounts and day of the month the purchase will go through.



The first two companies that I purchased were Apple (AAPL) and Disney (DIS).  Two pretty solid companies that have the potential for great dividend growth over the next few years.  Disney probably has a more viable long term plan than Apple since Disney doesn't require constant innovation, but I wanted a bit of exposure to Apple even though it's not one of the typical companies I purchase.  I personally don't understand the draw of the Apple products but people are hooked on them.  Plus the ecosystem is pretty amazing.

I'm only investing $175 per month to start out, with $25 increments.  I want to see how the whole thing works before I ramp up the amounts.  If I'm happy with the way things work then I'll eventually bump up the purchases to probably $50 per month and branch out into a few other companies as well.  At most I expect to invest $1k per month through Loyal3 to get my savings invested a bit quicker and slowly build the positions over time.  Although that'd still leave me with about $4.5k per month to invest through a traditional brokerage account based on my average monthly savings thus far this year.  Thank you high savings rate.  There's still several other companies that I'd like to start or continue building positions in such as Unilever (UL), Coca-Cola (KO), Pepsico (PEP), Hershey's (HSY), Microsoft (MSFT), Starbucks (SBUX), and YUM Brands (YUM).

For anyone that has already been using Loyal3 for a while, is there a way to set up multiple purchases for the same company throughout the month or do you have to set up separate one time purchase orders?  Also can you do one time purchases that are more than $50 and use a credit card or do you have to have cash in your account to make the purchase?

Do you use Loyal3 or another alternative brokerage?  

Note:  You should only use Loyal3 to make purchases with cash that would be invested anyways, i.e. cash already in your accounts.  Buying stock using your credit card without being able to pay off the bill every month will be a losing situation 99.9999% of the times due to the interest you're charged.

20 comments:

  1. Congratulations on taking the plunge JC. I look forward to seeing how your Loyal3 experience turns out. I find Loyal3 curious because I can't figure out how/if they make their money. Aside from the trades, there are also credit card processing charges assessed to merchants on all credit card transactions. Surely they have some interest in making a profit, or else they wouldn't be in business.
    -Bryan

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    1. Bryan, Loyal3 makes money in two different ways. Per their website: "LOYAL3 receives fees from companies that have a Social Stock Plan on our platform and will be compensated in its role in IPOs. For other stocks on our platform, LOYAL3 does not receive fees."

      JC, I'm a big fan of Loyal3 and have recently increased from $300 per month to $500 per month. A great way to get some rewards on purchases in a reasonably decent DG portfolio with money I'd invest with anyways. I always do the max $50 credit card transaction per holding I'm buying, with multiple transactions for a single stock if I want more than $50 worth for that purchase. I do not use the automated monthly option as I like to see how the markets are affecting the valuations of positions prior to putting in a buy order. While this isn't true market timing, some companies are better values than others at any given point, in any given month. The best part about the account is that you are essentially able to selectively reinvest your dividends once they've been received. Pretty awesome and why I'm a big fan of Loyal3.

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    2. And to answer your last question JC: If you want to buy more than $50 in a single transaction, you must utilize a linked checking/savings account or have the cash already in the Loyal3 account. Credit card transactions must be in $10, $25, or $50 amounts.

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    3. Thanks for the heads up W2R. I knew you were up to date about Loyal3, because I've been reading about your own experiences on your site for months. Have a great weekend guys.
      -Bryan

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    4. @w2r,

      Thanks for the info. I guess my plan will be to do more frequent one-time purchases once I want to commit more capital to Loyal3. Probably next month.

      @Bryan,

      Now I don't know if this is for all companies but I know some of the companies that are on the platform the company covers the costs. Essentially this is a cheap way for the participating companies to have access to cash by selling some of the treasury stock on the books and not have to deal more expensive routes. It seems like Loyal3's income is solely from the IPO partnerships which does make it a bit riskier than a traditional brokerage. But I'll use it while I can as long as it makes sense. If they do away with the no fee investing then I'll be done though.

      Thanks for stopping by!

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  2. Nice grabs, PIP. I've found that I just simply put through one-time purchases in the $25 or $50 increment instead of setting up monthly plans. I believe you can only do it once a month currently with a monthly-set up. I have, since starting a couple weeks ago, put through a couple $50 buys within a day of each other - and think I may have done two in the same day. I'm okay with this, as it actually provides a little bit more control than a one-time monthly purchase.

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    1. Warrior,

      I'm thinking setting up multiple one time purchases for the positions that I want to build up is going to be the best route, especially since this is a long-term plan.

      Thanks for stopping by!

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  3. Congrats on a new account. I looked at some options myself (Loyal 3, Sharebuilder and Motif Investing) to add one in addition to the Scottrade account that I currently have. I plan to decide sometime pretty soon with the new account.

    DGJ

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    1. DGJ,

      Let us know what you decide. I think the next account that I'll eventually open up is going to be a more traditional brokerage. Possibly Scottrade or one of the cheaper ones, I think OptionsHouse is only like $4.95. I know there's one somewhere that does that.

      Thanks for stopping by!

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  4. Seems that more and more ppl are using Loyal 3. It's still not clear to me whether us Canadians can use Loyal 3 or not. I need to spend some time investigate this potential.

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    1. Tawcan,

      Hopefully y'all can use Loyal3 because I think it's a great option for those with smaller amounts to invest or if you're looking to DCA into a few positions.

      Thanks for stopping by!

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  5. I've been using Loyal3 since the beginning of this year and really like it. Makes it easy to still invest on months where I don't have enough to make a normal position sized purchase in my brokerage account.

    In response to buying more than $50 at a time with a credit card, you can simply make multiple purchases back to back. Just wait about a minute or so in between purchases so the system recognizes that it is a new order. I got this info from talking to a customer service rep through their online chat and have been doing it the last couple months. Back to back orders like this will process on the same day at the same share prices, so its just like one big order. Hope this helps!

    -SFZ

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    1. SFZ,

      I've been looking for a way to DCA into some positions without setting up lots of individual stock purchase plans and Loyal3 seems like one of the better options. Motif still intrigues me though.

      Interesting to find out about the back to back orders. Although as a DCA method I'll probably just focus on purchasing a little bit every week in a few select companies. I'm just getting my feet wet but I really like this and could easily see myself investing $500-1000 per month through Loyal3. Well at least until the positions get to a certain level.

      Thanks for stopping by!

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  6. PIP,
    So far I've liked Loyal3 a lot. As long as you are not worried about a precise share price, it is convenient. Interesting to hear from SFZ you can buy shares back to back with a credit card. As I've suggested before, the credit card rewards churners must have caught on this this and abused the CC system. Knowing that fees are 2-3%, my guess is CCs won't last on this platform. Maybe it's a loss leader for them. I would also like to see more than one automated purchase per month. I prefer to make 2 $50 purchases every 15 days instead of $100 every 30 days. Nice choices you've chosen there. I'd like to add some more slow drips and buy over the next few years.
    -RBD

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    1. RBD,

      I wish you could set up multiple purchases of the same company each month but at least you can do multiple one time purchases. Loyal3 seems like a great option if it remains the same. Now they just need to get a few more DG companies added to the mix.

      Thanks for stopping by!

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  7. Remember Madoff? People gave him all of their money, in many cases. And lost them. For the same reason you mentioned and for the same reasons or jeopardy one broker can be to your money I hold my investments across several brokers. I have an account with Fidelity, Scotttrade, and Motif Investing - besides my accounts with TD Ameritrade.
    It may feel like shattering your purchasing power, but I think it is a needed thing to do to protect yourself.
    I know Loyal3 and I like that they allow you to use credit card to fund your account and you can trade fractions. What I do not like is that their selection of stocks available to purchase from them is limited.

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    1. Martin,

      While I don't think we'll have a Madoff situation with any of the major brokerages, hedging your bets is still a good idea. I hope that Loyal3 does get more big name companies on their list. That's really my only gripe about Loyal3, but there's definitely no complaints about a no fee investment option.

      Thanks for stopping by!

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  8. When ever I get my portfolio up to about $100,000 I plan to open a second account. FDIC insurance on cash balances is $250,000. Once it reaches 100,000 it'll sit for awhile so I'd like the account to have breathing room to that 250,000 cap assuming I cashed it out.

    Thanks,
    WE#1

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    1. Generally FDIC insurance doesn't come into play with brokerage accounts.....

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    2. Right FDIC insurance wouldn't help in this situation. What you need to make sure is that your brokerage has SIPC insurance. It works in much the same way as FDIC insurance but it's very different. SIPC covers in the event of a failure at the brokerage but doesn't cover stock market losses. In most situations your shares will be transferred "in kind" to another brokerage firm if yours happens to go under. "In kind" means that the cost basis wouldn't be stepped up to the cost basis at transfer so you'd keep your original cost basis.

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