I have read a few other bloggers talk about Loyal3 and it seems like they are a pretty good way to invest, but only in a few select companies. Other bloggers talking about them include Retire Before Dad, who uses a credit card to earn rewards on his monthly purchases from Loyal3. Dear Dividend is perhaps the first place I read about Loyal3 in his post about cheap or no fee investing. Also Ryan at impersonal finance did a great summary about Loyal3 as well. So if everyone is talking about it, it must be all good right? Well there are a few things that I don’t like about the service but also many things that I do like.
Disadvantages
Not Available for Retirement Accounts
Loyal3 is a brokerage service only. Meaning you cannot stash money away in a tax advantaged manner. So if you are looking to grow money tax free or tax deferred they currently cannot do anything about this.
The Brokerage Account Cannot be a Joint Account
This is more of a minor hassle for me. For some people it is nice just to have all financial assets jointly owned between you and your spouse, this being one. However, Loyal3 is only for an individual brokerage account so make sure your trust or will reflects that the ownership transfer to your spouse upon death if this applies to you.
Limited Selection
Loyal3 is a fairly new service and only has so many stocks available to invest in. There are alot of big name companies in the list as they seem to focus on adding companies at IPO’s and to add in companies in which are popular. Specifically they say they want customers to be able to “Invest in the brands they know and love”. So it is unlikely that they will be adding in too many companies that the population is unfamiliar with.
Trades Are Not Instant
If you are looking to get in or out of a stock because of recent news or events that make you rethink your investment strategy, don’t expect it to be liquidated or added moments after you click “sell” or “buy”. That is because Loyal3 does batch processing daily on both buying and selling shares. This is fine for a long term investor, but you need to understand this limitation particularity when trying to exit a position. In fact if you are buying with a debit or credit card there is a few day delay before the transactions are processed.
Advantages
No Fees!
The best part of Loyal3 is that there are no trading fees. Part of how they do this is through agreements with the companies in which you invest with. Another part of it is through the batch processing which is primarily how they can reduce costs by trading everyone’s shares only once or twice a day.
You can Invest as Little as $10 at a Time
This is a major advantage. If you are looking for a way to invest that coffee money that you are saving then this can be a great place. You can put in just $10 at a time to purchase a stock that you enjoy the business of. You no longer have to hold onto that money until you get a substantial amount to invest with. Just $10 can invest in a partial share of a company and create an account. It is a great way to get started investing because of the low capital requirement and no fees.
Invest With a Credit or Debit Card
When I saw Retire Before Dad investing with a Credit Card earning cash back rewards with his purchases of stock I was sold. I don’t know any other service that allows you to get an instant 1% (or more depending on your card) return on investing. I had signed up for a new card with a $400 signup bonus and invested all $400 (free money) into two different stocks on Loyal3. So not only will it help me achieve my bonus, I will also get $4.00 in general rewards for getting the stock in great companies!
What I am Using Loyal3 for
Initial Purchases
Initially I purchased shares in Microsoft (MSFT) and Kraft (KRFT). This will use my $400 credit card signup bonus. I like these companies long term prospects, but I don’t have the time to go through a detailed stock analysis on these companies as the focus is on Loyal3. Loyal3 only allows you to save one credit card information in at a time. Now that my initial purchases are over I have switched my card information to my bank account at the credit union. Anyways, once these trades are finalized I plan on writing about their affect on my forward dividend income. But I still have two $50 KRFT trades pending before I can do that.
Monthly Purchases
Since I need 10 purchases a month to earn interest on my checking account… I have found an easy solution with Loyal3. Investing $10 in 10 great companies will get me my required purchases so that I can place all other spending on rewards credit cards in the future. Now you might think it isn’t worth the hoops to jump through, but I get 3% interest and with a balance of just $4,000 in my account that is $10 a month. So getting $100 in stock will net me $10, or more, in interest. Not a bad deal! My monthly purchases will start later this month and include the following:
- Coca-Cola (KO)
- Walt Disney (DIS)
- Kraft (KRFT)
- Mattel (MAT)
- Microsoft (MSFT)
- Kellogg’s (K)
- Pepsico (PEP)
- Walmart (WMT)
- Unilever (UL)
- McDonald’s (MCD)
Other stocks I considered were Yum Brands (YUM), Dr Pepper Snapple Group (DPS), Target (TGT), Hasbro (HAS), and Mondelez (MDLZ). I was trying to diversify between sectors so I compared them to the other stocks available in the same sector. I plan to revisit these automatic purchases in the future as Loyal3 adds more stocks and as stock prices change others may become a better value. Also if Intel (INTC) ever decides that they want to start raising their dividend I will put them into the considerations as well and I would maybe consider Apple (AAPL) in the future if they continue to grow as a dividend stock.
What about you, have you checked into using Loyal3? If you use it, do you like it?
Full Disclosure: Long KO, DIS, KRFT, MAT, MSFT, K, PEP, WMT, UL, MCD
UPDATE: Loyal 3 recently announced that they will be discontinuing debit and credit card purchases of stocks. I felt that this is important to note, because it was a significant advantage of Loyal 3 at the original time of writing, but is no longer available.
Photo Credit: Stuart Miles / Freedigitalphotos.net
Kipp,
All in all I think the pros outweigh the cons. I’m used to the batch purchases because that’s the way most DRIPs work. Not ideal, but if you are making regular purchases, the exact price doesn’t matter as much. I’d like to see more industrial companies, but people don’t usually love those brands. Loyal3 may need to change their approach to get other large companies in different sectors. Dividend investors are lucky to have some companies we like available, and hopefully we’ll get more in the future. I think with time there will be more services and companies to invest in. Thanks for the mention.
-RBD
I agree RBD, which is why I am investing. Hey 10 transactions in quality companies each month guarantees that my checking account is earning interest. Which for me works out better than the $1.00 credit card reward as I can then charge whatever else I was previously onto the credit cards. Which is usually more than $100 worth of stuff to get 10 transactions.
Seem intriguing, especially with the option of using credit cards to fund an account and reaping the rewards.
Something about their business model seems fishy though. All of this is no-fee? Even depositing with a credit card? That alone puts them 2% in the hole from CC fees. Where are they making their money? I assume they are selling flow from the accounts to a larger brokerage to trade against. Scummy, but everyone does it. But even that doesn’t seem to make the model sustainable.
If I were them I’d have a big section of “How we make money” to assuage cynics like me. Until I understand their business model, I’m wary.
Hey Mr Frugalwoods,
Well if you goto their browse stocks page you will see some stocks with a double heart under the logo. It has a note on that page that those companies pay fees to Loyal3 for the service. Not sure on how they break even on the other ones though.
Yeah, it may be that they haven’t quite figured out their main revenue model and they are coasting on Venture Capital until that point. Nothing wrong with that.
It could also be that I’m a crotchety old cynic who likes to wave his metaphorical cane at internet whipppersnappers!
Haha! You may be onto something there! :). Yea from glancing at their about page they reiterate that they charge fees to the companies… it seems mostly through doing IPO’s, which is how they add alot of companies on their list. However, I am not really an IPO investor, I am just there for the solid long term companies that are available.
Interesting! Those are some low minimum investments. I’ll have to check it out and see what it’s all about for my readers as well. I am pretty old school with my dividend stocks and index funds, but I like to try new things. It does look like a good way to get started with new accounts.
Yea I think it is a great way to start investing a few bucks. Great motivation for starting to save as well. Didn’t buy $10 worth of coffee this week, buy $10 worth of stock!
Loyal3 looks interesting, too bad it’s not available to Canadians like me.
I think the concept is great, it’s a great service for people that want to build their portfolio over a long period of time and invest small amount of capital each time.
Yea that is unfortunate. All of these darn legal barriers! And Canada is actually closer to me than most of the US!
Kipp,
Sounds like a good rundown here on Loyal3. Wish you the best of luck with their services! And you’ve got a great list of 10 stocks up there to get started with.
There have been quite a few no-fee platforms come and go through the years. Hopefully, they can keep it up longer than most.
Best wishes!
Year their selection is limited, but at least they have some high quality companies. I guess if they close I will probably transfer the shares to scottrade or Schwab. Not sure which yet. I would imagine they would have to liquidate the parital shares as well. Not sure what exactly would happen in that scenario! But in the meantime I can start up small positions in several companies.
I’m currently using Loyal3 to invest in a few companies until I get a substantial holding to transfer to my brokerage account. As you mentioned, it has some positives and negatives. Thus far, I’m really liking my account, but I’m also leary of the no fee concept. I hope it lasts, but who knows. I’m going to take advantage of it while I can though! Thanks for the posting.
Hi Agent Dividend,
It is nice that they do have a few good holdings and the minimums are low to start out investing. I hope the no fee system lasts, I haven’t heard of any no fee systems before, but Dividend Mantra pointed out in his comment that he has seen a few no-fee systems before and they have not lasted. I am not sure on the previous companies business model’s, maybe Loyal3 makes enough off of IPO’s and other business services that it will last? Only the future will tell, but as Mr. Frugalwoods pointed out, allowing credit cards can kill them on fees.
Thanks for the info. I have seen another blog about Royal3 and have it listed as something to investigate further. This is a great writeup and I like the way you have listed out the pros and cons. I love the Credit Card rewards angle. One of the biggest pains is figuring out your basis when selling stocks when later accounting for it on your taxes. My question is do they have a good system to provide the necessary statements for that, especially for those who purchased in $10 increments of a Stock over a period of time?
Hi Tommy,
I don’y have any statements yet, should have one at the end of September I would imagine being an end of a quarter. I can see online tho, with multiple purchases, that they are not breaking it down under each company. So hopefully the statements will be more detailed when I get one of those… if not it is a good thing I am tracking my purchases!
Loyal3 is on my list to start investing very soon. Going to use funds from my side hustle as an Uber driver to feed the investments.
Loyal3 has a number of good stocks and the limited list is full of quality sticks to choose from. The low invesent amounts and zero fees has me sold.
Hey Demetrius,
Ya, I agree it is a great way to throw in a few dollars here and there. You can’t do that with traditional brokers because of all the fees. I think they have alot of valuable services and I hope the model works out for the long run!