There are more ways than ever for individuals to invest on their own in mutual funds and exchange-traded funds.
Big-name brokerages like Vanguard, Fidelity and E-Trade have plenty of perks, the biggest one being that they have low costs, says Matthew Gaffey, senior wealth manager of Corbett Road Wealth Management in McLean, Virginia.
“There is absolutely no reason you should be paying more than $10 per trade when several larger firms are charging $4.95 per trade or lower to execute that same stock or ETF transaction,” Gaffey says.
[See: 10 Smart-Beta ETFs That Will Help You Get Your Alpha.]
On the other hand, you may not get the direction or personalization you’d prefer, especially if you invest casually or cautiously. But there are several alternative platforms and services with unique ways of helping you pick securities based on your individual needs, investing patterns, and goals.
Go interactive. The lesser-known online trading platform InteractiveBrokers.com charges $2.38 per equity trade, compared with $4.95 or $6.95 per trade with larger online brokerages. There’s no base costs for options trades.
“While the website does have a learning curve, they offer a plethora of educational videos. The downside is that there may be a minimum monthly fee if the account balance is low and there is not much trading,” says Morris Armstrong, owner of Armstrong Financial Strategies, a fee-only registered investment advisor in Cheshire, Connecticut.
This makes the platform best for frequent, individual stock pickers.
Buy direct. Instead of using a universal platform to execute trades across fund holders, consider buying directly from the fund creator. Yes, it may require an extra login to manage, but it could save on fees.
“If you are simply looking to buy and hold mutual funds, I would always consider a direct purchase when available from the fund family themselves,” says Dan Stewart, president of Revere Asset Management in Dallas. “I am of the opinion that you really do not need a brokerage account if you only have three or four mutual funds.”
For example, if you like one fund from iShares and one fund from Value Line, set up accounts with each.
Be an activist. Change Finance, a small, boutique company, was “founded to empower financial activism,” according to its website, and recently launched the Change Finance Large-Cap Fossil Fuel-Free ETF ( CHGX).
The company suits investors with a do-good mission and plans to release a slew of ETFs dedicated to things like “woman-representation on boards” and “black lives matter,” among others, says Robin Lee Allen, managing partner for Esperance Private Equity in New York and San Francisco.
See an independent registered investment advisory. Registered investment advisors and their employees are the only financial advisers who are legally required to do what’s in the client’s best interests as fiduciaries, says Joshua Escalante Troesh, president of Purposeful Strategic Partners in Rancho Cucamonga, California, making them a great option for investors who want and value personalized advice and guidance. They can then go seek trades on their own.
“Many brokerage firms are set up as hybrids, being both brokers and RIAs. This allows the company to choose when they want to be legally required to do what’s best for the client and when they don’t,” he says.
[See: The 10 Best ETFs to Buy for 2018.]
Learn from others. Started by a former hedge fund manager who was disappointed by the dull and bore in the online brokerage space, nvstr.com helps investors decode stock picking while keeping fees low.
“There was a big divide between the technology and collaborative workflows that top financial institutions have, and what the major brokerages offer to us as individual investors,” says co-founder and CEO Bernard George. “Most of the work lies in choosing which stocks or ETFs to buy, and deciding the right way to fit them together into a portfolio. Unfortunately, most brokerages don’t really help much here.”
Nvstr allows investors to see which stocks legendary investors own, and “grow and to leverage the collective experience of other smart investors,” he says. You can also open a simulated account to test your picks before using real money.
Seek brokerage promotions. In the competitive brokerage space, companies often run promotions to entice individual investors to bring their business over.
“Brokerages are known to offer up to $500 cash if you switch your service from a large brokerage like TD Ameritrade or E-Trade, to their platform. They will throw in free trades, low-trade commissions and all sorts of goodies, too.” says Larry Ludwig, founder of Investor Junkie, which keeps a list of current brokerage promotions.
At this writing, Ally Invest was offering a cash bonus of up to $3,500 plus commission-free trades for 90 days with a new account, and smaller firm SogoTrade was offering 200 free trades to any new customer who transfers funds with no minimums from another brokerage.
Try a smaller brokerage. FirstTrade is a smaller platform that allows Chinese-Americans to trade in their native language and in their home markets from their American locations, which is not common in mainstream brokerages, Ludwig says.
It also offers commission-free trading on 200 ETFs, and $2.95 per stock trade. “Smaller brokerages have to fight hard for your attention,” says Ludwig, and that often leads to great deals.
[See: 9 Ways to Buy Stocks That Everyone Needs.]
But no matter how you invest, be sure to look at the expense ratio and fees for the funds you’re buying, Stewart warns, because transaction fees and cheap funds are often compensated by these instead.
“Sometimes it might be better to pay a transaction fee for a better fund,” he says.
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7 Alternatives to Investing With Big Brokerages originally appeared on usnews.com
