The ShareBuilder Brokerage Account: The Good, the Bad and the Ugly

Cyberspace is cluttered with glowing reviews of the ShareBuilder brokerage account. Being easy to use and light on certain fees, ShareBuilder does have its advantages. But like anything else, it also has drawbacks-drawbacks that may not be apparent until after you open your account.

ShareBuilder's Blondie (that's the good)

Investing for the masses. Let's start with what ShareBuilder does well. ShareBuilder takes the complex subject of investing and makes it approachable for the most timid of investors. The content on the site characterizes investing as simple and easy, something anyone can do. The home page tells you "there's an investor in everyone." The "getting started" information describes the account opening process in three easy steps.

ShareBuilder's easy-as-pie approach doesn't mean much with respect to your investment performance. But, if it convinces you to open an account when you otherwise wouldn't have, then you are reaping the rewards, so to speak. Time is your biggest asset in investing; opening an account today, rather than next year, gives you the opportunity to earn more over time.

No account minimums. You can open your ShareBuilder account with nothing-obviously a huge advantage when you don't have much money stashed away.

Set it and forget it. ShareBuilder also offers affordable automatic investing. Through this program, you set your account to purchase a dollar amount of selected stocks at regular intervals. You won't have the luxury of timing your purchase for the best price, but that shouldn't matter if you are investing for the long haul. You will be able to ignore your investment account even as you are building up the positions in your portfolio. That's a nice perk when you're generally short on time.

With ShareBuilder's basic account, these automatic trades only cost you $4.

Angel Eyes, the bad

Cost of real-time trades. Despite the low fee for automatic trades, your ShareBuilder account could still rack up trading fees over time. Trades made outside your automatic plan cost you $9.95 apiece. Other brokerage accounts, such as Zecco and Just2Trade, beat that $9.95 price tag handily.

So the first rule about ShareBuilder is this: if you plan to buy securities outside of your automatic investment plan, ShareBuilder isn't the cheapest choice. Also, remember that you will eventually sell the securities you buy. Each of those sell transactions will incur the higher, real-time trading fee.

Those fees apply to stock purchases; mutual funds have a separate fee structure. ShareBuilder does have a selection of mutual funds you can buy without incurring transaction fees. If you want to purchase a fund that isn't in the no-fee group, the trade will cost you $19.95.

Securities selection. Your ShareBuilder account does not give you access to all securities. You can choose from about 7000 different equities, mutual funds, ETFs and closed-end bond funds. You won't be able to purchase corporate or municipal bonds. This may not matter too much when you are just starting out, but the light mutual fund selection might be a concern. Your mutual fund options are limited to roughly 250 funds from eight families: ING Funds, American Century, Dodge & Cox, Dreyfus, Fidelity, PIMCO, T. Rowe Price, and Vanguard.

Tuco, the ugly

No research with free account. As a novice investor, you will likely prefer ShareBuilder's basic account-the one that charges no monthly maintenance fees. But you are also likely to want some help deciding which stocks are right for your portfolio. ShareBuilder does allow basic account-holders to use its PortfolioBuilder wizard, but you won't have access to stock research.

ShareBuilder offers two primary research services, Stock Grades and Stock Reports, but neither is available to basic accountholders. Stock Grades are available on the Standard account, which charges a monthly service fee of $12. The Advantage account, which costs $20 monthly, provides access to both services.

So here's the second rule about ShareBuilder: unless you're willing to pay for it, you'll have to find another source for investment research.

The gist of it is, ShareBuilder's basic account is a good option when you want a hands-free, low-maintenance investment program, now and forever. If you ever decide you need more, you'll have to upgrade to a paid account or switch to another brokerage.