Bringing stocks to low and middle income consumers

BELLEVUE, Wash. - Credit union members who haven't tested the stock market waters may now have a way to get in on the Wall Street action with a very minimal investment. There's no question that the Internet has empowered Americans to buy and sell stocks on their own terms. The E*Trade commercials with a hospitalized man having too much money coming out of his "wazoo" makes it seem like online trading is available for everyone. But one of the problems with online brokerages like Charles Schwab, Datek, etc. is that there can be a substantial up-front minimum investment. Charles Schwab requires $5,000 to start an online brokerage account, and Datek requires $2,000. That's obviously going to prohibit many low to middle income members from opening these accounts. Even well-known online "discount" brokerages require minimum investments that may prohibit many low to middle income Americans from trading stocks online. TD Waterhouse, one of the most popular online discount brokerages, requires a $1,000 minimum investment. E*Trade also requires a $1,000 investment. Credit union members can make small investments in money market accounts, CDs, bonds, and other investments, but stocks historically outperform all of these other investment vehicles over the long-term. There is a new player in the online investing arena that is taking a different approach. Netstock, Bellevue, Wash., has unveiled a product known as ShareBuilder. Already, Patelco CU, GTE FCU, American Electronics Association CU, Fairwinds FCU, First Technology CU, and others have signed on to offer their members ShareBuilder. "The difference between us and traditional brokerages is we were built to handle dollar-based investing. Right now you can't go anywhere else online and buy stocks by dollars instead of shares," said Brian Ratzliff, vice president of marketing and business development for Netstock. That's significant, said Ratzliff, because if a person with a small amount of money to invest wants to buy shares of Microsoft, for example, they would have to come up with the $100 or so share price just to buy one share of the mega tech company. With ShareBuilder members can invest a certain amount of money on a regular basis, say $50 a month, and be able to purchase a half a share of Microsoft, or whatever the $50 will buy them. Investors utilizing a Schwab or Waterhouse have to buy stocks in terms of shares not dollars. So if an investor doesn't have the $125 to buy an America Online share they can't purchase that stock. With ShareBuilder, investors can purchase a fraction of a share. ShareBuilder is designed for dollar-cost averaging investing. Most investment experts agree that dollar-cost averaging is one of the safest, long-term investment strategies for the stock market. On a regular basis, an investor makes a set dollar amount investment. The investment usually takes place on the same day of the month each month, or twice a month, or more, depending on the investor. On a market downswing investors will get more shares for their dollar, but on an upswing they will get less. The idea is that over time an investor will catch the market on upswings and downswings, greatly reducing their overall investment risk. An investment of $100 a month in IBM over the last 10 years (a $12,000 investment) would have grown to $60,000; for Microsoft the same investment would have grown to some $232,000. Investors can't buy all stocks with ShareBuilder. It focuses on 2,000 of the largest market cap stocks such as Dell, AOL, Cisco, IBM, AT&T, GE, GM and other well-known companies "There are no minimal investments. It's incentivised to promote dollar-cost averaging. We charge just $2 per transaction in ShareBuilder," said Ratzliff. Netstock also offers a custodial account where a parent or grandparent opens an account on behalf of a minor and can get them on a dollar-cost averaging program for just $1 per transactions. Members can get to ShareBuilder via their credit union's Web site, which will take them to a co-branded site to do the actual investing. Ratzliff said the average ShareBuilder investor invests $300 a month in three securities. The most popular stocks are Costco, AOL, WalMart, Home Depot-companies many consumers visit on a weekly basis, said Ratzliff. "It's a great way for a credit union to have another relationship with their members. The members that can't meet the minimum requirements of other brokerages can get in on this," said Ratzliff. Netstock doesn't see itself as a competitor to the E*Trades of the world. "If a credit union already has an online brokerage account system for their members that's fine. We're not looking to build daily stock trading business. That credit union can still offer us to their members for dollar-cost averaging investing," said Ratzliff. First Technology, Beaverton, Ore., has just rolled out ShareBuilder to its membership. "I think it's a great credit union product. The whole idea is to offer members, especially younger members, access to the equities market for low cost. They can build their own mutual funds by picking the stocks they like," said First Technology CEO Tom Sargent. Sargent said the credit union has only done one marketing promotion and already 300 members have signed up for ShareBuilder. "This is a way to add to members' investment mix. It gives them more power to build wealth over time," said Sargent. Credit unions get a flat fee from Netstock for every transaction their members do. -pgentile@cutimes.com