Brokers for do-it yourself investors.
Online brokers are a simple solution for do-it-yourself investors who would rather manage their own portfolios than pay someone else to do it for them. These days, investors can buy and sell stocks and other assets on their own with the click of a button, and they can also avoid many of the costly commissions money managers charge. However, with dozens of online brokers out there, knowing what to look for is an important first step in choosing the right online broker. Here are eight things to consider when choosing an online broker.
Do your research.
The good news for today’s investors is that there has never been more information available about financial markets. The bad news is that tracking down useful, timely information can be difficult and expensive. Most online brokers provide some form of market research for free, including stock and exchange-traded fund reports from reputable Wall Street firms. However, the quality and quantity of that research varies. Experienced investors may already have preferred third-party research sources that meet their needs. However, inexperienced investors need to consider whether they expect their broker to keep them informed about the market.
How much are the fees?
Investing is all about making money, and every cent lost to fees eats into returns. The good news for do-it-yourself investors is that pricing wars among online brokers have driven fees significantly lower in recent years. Still, basic trading commissions vary substantially from one broker to another. Discount broker Robinhood offers users unlimited commission-free trades for access to its bare-bones platform. TD Ameritrade, Merrill Edge, Scottrade and other popular online brokers charge trading commissions of $6.95 or higher for access to advanced tools and services. Brokers can also charge hidden fees, such as inactivity fees and account transfer fees.
Know your asset classes.
For investors looking for diversification, the standard online broker offers stocks, bonds, mutual funds, ETFs and options. However, only certain brokers provide access to international markets, OTC-listed stocks, currency exchanges, futures trading, cryptocurrencies, derivatives and other uncommon investments. Investors who intend to venture outside of the core asset classes of stocks, bonds and cash should make sure to find a broker that offers the asset classes they are looking for. In addition, they should go over the broker’s fees with a fine-tooth comb. Brokers often charge additional fees on these unusual investments.
Look for retirement tools.
Retirement investors should look for brokers that offer features that help them create and execute a retirement plan. Retirement investors may wish to choose a broker that offers IRA or Roth IRA accounts with tax advantages. Some brokers offer commission-free ETFs and mutual funds that provide cheap, diversified market exposure. Certain brokers offer special retirement tools, such as retirement calculators. Brokers that offer robo-advising services or auto-trading features may also be a good fit for retirement investors looking to mitigate risk during market downturns.
Go mobile, if you can.
Investors that are so hands-on with their portfolios that they want 24/7 access to trading accounts anywhere they go should choose a broker with an easy-to-use mobile app. Mobile trading lets investors take advantage of a new investing idea during a lunch break or simply check their returns on a train ride to work. It can also allow investors to keep abreast of the latest market news at their convenience. A top-tier mobile trading app gives investors the security of having their portfolio with them in their pocket everywhere they go.
Are you investing on margin?
For investors planning on making investments on margin, margin rates can be critical. The interest rates brokers charge on margin accounts can range from as low as 1 percent to as high as 10 percent depending on the broker and the size of the account. Any market gains from stocks or other assets can be completely offset by margin fees, so investors intending to make investments on margin should pay close attention to margin rates. Interactive Brokers, one popular broker known for its low margin rates, charges clients 2.66 percent on margin accounts of up to $100,000.
Check the reviews.
As is true with any online product or service, customer reviews may be the best indication of whether an online broker delivers on its promises. Every broker’s website makes its own offerings sound great, but only customers can give unbiased accounts of their first-hand experiences with the platform. Potential customers should pay special attention to complaints related to hidden fees or customer service. Reputable brokers should always be upfront about fees and commissions, and investors should be able to count on fast, convenient access to customer service. Isolated complaints are understandable, but patterns are a red flag.
What’s on sale today?
In the highly competitive world of online brokers, competitors are doing everything they can to win over customers. Most brokers offer some form of a promotional deal for opening a new account. Promotions typically include a cash bonus based on how much cash is deposited and a limited number of free trades during an introductory period. The benefits of these types of promotions are limited and temporary, but promotions can be a deciding factor when choosing among brokers with similar offerings. When businesses compete, the customer always wins.
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8 Things to Consider When Choosing an Online Broker originally appeared on usnews.com
