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Loyal3 Account Review: Brokerage Fees, IRA Investing, Pros and Cons, Mutual Fund Offerings

Loyal3 Accounts Offered

Loyal3 only allows to open a regular individual or joint brokerage account. The firm does not offer IRAs: there are no Roth IRA, traditional IRA, or retirement accounts for self-employed (SEP, SIMPLE, or 401K) at the company.

Loyal3: The Broker for the Little Guy or Gal

Most small investors invest via mutual funds because participating directly in the stock market costs too much in commissions and it is very risky. Loyal3 seeks to give even small investors the chance to invest directly in the stock of companies they favor without paying any fees.

Opening an Account with Loyal3 and Making a Stock Purchase

To register at the Loyal3 website a user only needs to enter their name and email address and set a password. After that is done, clicking the “Browse Stocks” button brings up a grid showing the stocks sold by Loyal3:

Loyal3 Review

Users get a stock order form by clicking the name of the stock. The “Read a Description” link informs the reader that Kellogg’s makes cereal, breakfast bars and Keebler cookies. There is no financial information about the company.

Users can invest any amount from $10 to $2,500, but do so in increments of $10. Once an amount is selected, users are asked whether they want that to be a one-time purchase or one that repeats monthly. The next screen asks for bank account information. After the usual verification process involving two small deposits, the user’s bank account is linked to Loyal3 and the money needed for the stock purchase is withdrawn from the investor’s bank account and used to purchase the stock.

Once the stock is purchased, it shows up on the user’s home screen. If users want the transaction to happen more quickly, they can transfer cash from their bank to Loyal3 to have it available for trading; nevertheless, the trades are still batch trades and will not happen instantly. In cases where users have no money on deposit with Loyal3, trades generally take about three days.

What Makes Loyal3 Different from Other Stockbrokers?

Fees: In short, Loyal3 does not have any fees.

Partial Shares: Loyal3 allows users to purchase partial shares of stock so that investors can choose the amount of money they want to invest, without taking into account whether they have enough money to purchase a whole share of stock in a company.

Batch Orders: Loyal3 does not purchase the shares of stock immediately upon request by the customer. Rather, it gathers all its customers’ orders for a period of time, often one day, and purchases them at one time. They may even trade between users. If the market is very volatile the day the purchase is ordered, customers may pay more or less per share than what they expected.

What Type of Investor Will Be Happy with Loyal3?

Loyal3 is designed for long-term investors who are willing to trade-off service, data and access to the wider stock market in exchange for not paying fees. Trades are not executed immediately, even for investors who have sufficient funds in their account to fulfill any orders; therefore Loyal3 is not for people trying to time the market.

What Is Loyal3 Lacking?

While most brokerage houses allow you to place orders that certain stocks be purchased if their price drops to a certain point, or that they be sold if the price rises or drops to pre-determined points, with Loyal3, investors purchase a certain dollar amount of the chosen stock, no matter what its price when the trade finally executes. When stocks are sold, the price received is the market price at the time the batch trade is made. Loyal3 is for people who want to own a particular stock and who do not believe the price of that stock will change substantially in the very short term.

Loyal3 does not offer any data about the companies whose stocks it carries. There is no place on Loyal3’s website to find the P.E. Ratio, the debt the company is carrying or what the dividend was last year. While that data is easily available on the internet on sites such as Yahoo! and Morningstar, some investors find the lack of data to be a problem.

Most brokerage houses allow customers to purchase stocks on margin; in other words to borrow money to purchase stock. Loyal3 deals only in cash.

The biggest thing Loyal3 is lacking is most of the stock market. As of this writing, only seventy stocks are available via Loyal3. In some ways this is an advantage to an inexperienced investor because it narrows the scope of companies to investigate and analyze. Most of the stocks carried by Loyal3 are household names in the consumer products, food and beverage or tech industries.

Does Loyal3 Sell Anything Besides the Seventy Listed Stocks?

Besides the seventy listed stocks, Loyal3 periodically offers its investors the opportunity to invest in IPOs and Follow-ons. An IPO is when a stock is sold to the public for the first time; a follow-on is when a company issues new shares of stock to the public. Users must have $350 dollars available to trade in IPOs.

How Does Loyal3 Make Money?

Companies that do not make money do not last long. Loyal3 makes its money from fees paid by the companies whose stock is listed. These companies use Loyal3 as a marketing opportunity. They have found that stockholders make good customers. Further, since many of Loyal3’s customers would not be purchasing shares of stock from other brokers, being with Loyal3 creates slightly more demand for their stock, hopefully raising the price a bit.

Who Should Invest With Loyal3?

Investors who want to purchase a small amount of stock either once or on a regular basis are Loyal3’s target customer. The lack of fees and low minimum investment makes this an ideal place for a first brokerage account. Most customers will be somewhat familiar with the majority of offered stocks and having the universe narrowed to seventy stocks helps focus their research, if they choose to do any.

Who Should Look at Other Options?

Investors who want to buy more than $2,500 worth of a single stock in a single day will need to find another broker. Anyone who wants one brokerage to handle all of their investment needs will not be able to use Loyal3. Loyal3 does not offer IRAs, Roth IRAs or anything other than a basic cash account. While a Loyal3 account makes a great introduction to the stock market, once users are ready to take off the training wheels, they will want to move to another brokerage - and by the way, Loyal3 does not charge for that either.

Loyal3 Reviewed by on . Rating: 3
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