Recently, I’ve been talking a bit more than usual about investing. It’s been on my mind a lot lately. A few weeks ago (maybe a month now, I’m not so great with days during the summer) I was doing some research online, one website led to another, and I stumbled upon a company called Loyal3. You may have heard of it, as I know some other bloggers out there were onto it well before me. But, in case you haven’t heard, Loyal3 is a fee-free platform that allows you to buy and sell stock in a limited number of companies. If you’ve ever paid $4.75, $6.95, or $7.95 to make a trade with your current brokerage, your
ears probably perked up eyes opened a little wider with intrigue. So, how does this work?
I was interested in knowing how they can take my money, charge me nothing, and the end result is my stock ownership. According to the smooth-voiced CEO, they “generate revenue by providing services to companies and charging them for those services.” They also help raise money for IPOs and increase brand engagement. So companies pay them to raise money (maybe) and increase brand engagement (yes). But, you as the individual shareholder benefit from this deal. Nice.
How much do you have to invest? “As little as $10.” This is probably my favorite aspect of Loyal3. It’s the one thing I can truly see making investing open and accessible to individuals with less means. If you only have $20 or $3o bucks per month to invest, it might be very difficult for you to save up enough money to make a purchase worth it. Ideally, you would want your fees to be around 60 basis points (0.006%). Or that’s my preference, I should say. If you’re paying $6.95 per trade, like you would with Sharebuilder for example, you would have to invest about $1,159 to achieve that result. With Loyal3, you can invest $20 every month, and “100% of what you invest goes towards buying stock.”
Because you can invest such a small amount, Loyal3 also allows you to purchase fractional shares. That is, basically less than one complete share. So instead of waiting until you have $40 to buy a share of Coca-Cola, you can invest $20, and buy 0.5 , also known as 1/2, shares of KO. Again, beneficial to the individual without much income who still wants to invest.
However, Loyal3 is limited. You can’t open an IRA, you will be buying your shares in a taxable account, and buy and sell orders are done through batch trading (meaning all at one time and “typically only once each business day for sells and twice each business day for purchases. Batch trading is used so that a number of accumulated orders can be executed with fewer market interactions.” Makes sense. It keeps their costs down, too). Also, the number of companies you can purchase stock in are limited, 58 at last count, but there are definitely 10 or 15 stocks that you can build a 30 year portfolio out of.
My main concern was with the security of my money and stocks. From their FAQ section
LOYAL3 Securities, Inc., as a broker-dealer, has to comply with certain regulations regarding the requirement to have adequate net capital and asset protection. LOYAL3 segregates your securities holdings and cash in your account, meaning it keeps your assets separate from the firm’s own assets. In addition, LOYAL3 Securities, Inc., is a member of SIPC, which protects securities of the customers of its members up to $500,000 (including $250,000 for claims for cash).
I have yet to withdraw any money though.
So it seems pretty legit. But, the big question- would I recommend Loyal3? That really depends. I’m currently using it to put a small amount each month into Coca-Cola and Disney. BUT, I would definitely recommend putting your money into a tax advantaged account first. However, if you’re maxing out those accounts, or only have $10 a month to invest and don’t want to wait 100 months to make the trading fees equivalent to a rounding error, give it a look.
It will be interesting to see how this plays out, as I can see the brand awareness being worthwhile to the companies participating, and think before long, there will be more offerings and a larger selection of companies in which you can buy ownership (that is what a stock is. Partial ownership in a company. Not a gamble. Remember that).
Also, this shouldn’t need to be said, but I own KO and DIS and am very, very long on them. I don’t anticipate selling them. Furthermore, I am not a professional. I encourage you to do your own research, talk to your own professionals, and more, as you and your situations are unique. You may also be interested in knowing that I was not compensated whatsoever for this post. In fact, I rarely receive any compensation at all from this website. I’ll say it’s because I’m no sell-out, but really I’m just not good at monetizing a blog.
Have any of you used Loyal3? What are your thoughts?