For investors using a buy and hold strategy, there are many different ways to build up a portfolio of stock positions. One method offered by ShareBuilder is to setup an automatic investing plan similar to automatic savings plans or the automatic investments made into your 401(k) by payroll deductions. These stock purchases start small but add up to big investments over time allowing the small investor to profit from a well timed investment but without having to save up a large amount of cash first.
ShareBuilder works by crediting your account with partial shares of stock as you build up your investing positions. For example, an investor who wanted to invest $200 per month into IBM stock could setup an automatic investment plan with a ShareBuilder account and have money deducted directly from his bank account or if the company allows it, deducted automatically from his paycheck. ShareBuilder will automatically buy shares of IBM stock.
If IBM stock is trading at $80 per share, then the investor would buy 2.5 shares of IBM stock on that day. Fractional shares continue to add up over time until they become whole shares.
Buying every month or even every other month allows the investor to take advantage of dollar-cost averaging whereby investing a specific amount of money each month, the investor buys more shares when the stock price is low, and fewer shares when the stock price is high.
Customers can manage their automatic investments online via a simple web-based interface that allows an investor to turn on or off their investments, or raise or lower them, or even start a new automatic investment.
