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.