Propeller Skies

In the days of way back, I was a huge fan of The Motley Fool. Now that they are nothing more than an ad for newsletters, not so much. However, The Motley Fool did clue me in to Sharebuilder, an extremely useful wealth building tool. Sharebuilder is basically a dividend reinvestment plan* (DRIP) on steroids. The following advantages of DRIPs are offered by Sharebuilder:

• Dollar cost averaging - buy more stock when the price is low and less when it is high;
• Free reinvestment of dividends allows your money to compound and grow;
• Regular automatic investments are a powerful way to build wealth over time; and
• Requires a minimal amount of money to begin investing.

Although useful for beginning and income investors, a problem with DRIPs is a separate plan needs to be set up for each company. Additionally, companies that do not pay dividends obviously do not offer DRIPs. Sharebuilder allows DRIP style investing in almost any stock, including those that do not pay dividends, centralized in one account. Sharebuilder also offers real time trading when markets are open. More advanced features, such as margin** and options trading are also available.

Sharebuilder is not, however, a panacea. One key issue is the amount of record keeping required to keep track of multiple automatic purchases. Also, as far as I know, Sharebuilder does not offer real time quotes, which makes real time trading difficult and options trading nearly impossible. That said, Sharebuilder is recommended.

notes:

* For more on DRIPS, see What Are Dividend Reinvestment Plans?
** As far as I know (not having a margin account there), stocks can only be bought on margin and not sold short. So Sharebuilder’s margin feature is pretty worthless to me - to manage risk, I never borrow money to purchase stock. Leverage is a bitch on the way down, as a couple of Bear Stearns hedge funds learned back in the summer.

People who give financial advice never shut the fuck up about emergency funds. I agree the concept is fantastic, but where the hell am I supposed to come up with three to six months salary to put in? Also, my traditional savings account currently yields less than the rate of inflation - making it a dog.

Ameriprise clued me in to high yield internet savings accounts. These can be easily identified, as direct is usually appended to the name of the bank. For example, I use HSBC Direct. Although their rate is not the highest, I am familiar with the bank from my days in the B-low and they offer an ATM card. Opening an HSBC Direct account was easy and accomplished on-line. So far, I am very satisfied with the account. As an aside, Bankrate is an excellent place to find others. On a monthly basis, seeing the interest I earned on the backs of the proletariat cheers me and encourages more saving.

Setting up the account is easy. Filling it with cash and sending it across the border is not. Prior to opening my HSBC Direct account, I had a two Starbucks a day habit. At four dollars for a cup of coffee, this worked out to 160 clams a month when multiplied by twenty work days. Cutting back to one overpriced coffee product a day hooked me up with eighty extra ducats a month. Although it will take some time, eventually the cheese and interest will pile up into a reasonable emergency fund.

As several banks (e.g. Citi, Countrywide, and Wachovia) are currently learning, liquidity is important. The point of an emergency fund is to avoid selling equities, options, or other positions at a loss when unexpected expenses or job losses fuck up your program.