Choosing the Best Online Broker for Your Investing Needs
The rise of the Internet has provided a number of opportunities for those wishing to be more involved with investing. Thanks to technology, more people can invest in more products, and even save money doing it. Investing is no longer the sole province of the wealthy, who can afford professional (and expensive) brokers.
These days, almost anyone with $25 can open an investment account with an online broker and begin investing. Whether you are interested in index funds, individual stocks, options, or some other asset, it’s possible to begin investing with the help of an online broker.
Before you begin to invest, it’s important to understand what you are investing in, as well as have a strategy. Think about your investment goals, and what you hope to accomplish with your investment account. Which broker you choose should reflect your own individual needs.
One of the most basic items to consider as you choose the best online broker for you is cost. If you are looking for an online broker that costs very little in general, TradeKing is a good choice. TradeKing features a very competitive flat fee of $4.95 per trade for stocks and ETFs. If you are primarily interested in stocks and ETFs, particularly those with values of more than $1, Trade King is an excellent choice. You do need to be careful with ETFs, though; these investments also come with expense fees since they are funds, although the expense ratios are normally small.
Cost is an important factor because what you pay to trade will eat into your overall returns. All brokers charge some sort of fee when you trade, so considering your costs is important. If you are planning to trade fairly regularly, it becomes especially important that you choose a broker with lower costs.
When investing in mutual funds, Scottrade can be a good choice. The cost for trading stocks and ETFs is $7 per trade – not bad, but still more expensive than TradeKing. Where Scottrade really shines, though, is in mutual funds. There are nearly 3,000 mutual funds offered by Scottrade that have no transaction fee. (You still have to worry about expense ratios.) If you do decide to trade mutual funds with Scottrade, though, you will want to avoid those funds that aren’t included in the no-transaction-fee types of funds.
Before you commit to an online broker, make sure that you carefully consider costs. One of the biggest impediments to successful investing is what you lose in fees. Lower costs can make a big difference over time. Depending on the types of investments you choose, different brokers offer different fee structures. Think about how you will invest, and what those investments will cost, before you sign up for an investment account.
What About Options?
While most beginning investors focus on funds (particularly index funds), and some individual stocks, there has been an increased interest in options recently. Because of the complexity of options, it’s important to understand how they work before you begin investing.
Before trading options, it can help to practice. TradeMONSTER offers a virtual trading account, with $100,000 in virtual money, to help you practice your strategies, and learn about how to trade. These types of accounts use what is happening in real time to show you how your trading strategies will likely play out. It’s also helpful to use a virtual trading account to help you learn a platform. With options trading, it’s important to have a handle on the trading platform, as well as a good idea about your strategies.
Active options traders might do well to consider OptionsXpress. This brokerage features relatively high prices for trading “regular” stocks and ETFs. However, if you trade options actively, and in reasonably large volumes, you can get a good deal on your trades. Active traders can get options for $1.25 per contract, which isn’t bad at all. Futures options can be traded for as little as $5.99 when you trade in volume. While you might want to look at a less expensive brokerage for stocks and ETFs, if you are an active options trader, OptionsXpress might be a good choice.
What If You Aren’t an Active Trader?
While you can use nearly any broker to create a dollar cost averaging plan, and use automatic investing to reduce your active involvement as you build your nest egg, there are those who are more interested in investments that require even less of them. One investment choice if you want a way to build grow your nest egg is to use Betterment.
Betterment charges 0.15%, 0.25%, or 0.35% annually, depending on how much you have in your account (the more you have in your account, the lower the fee). There are no transactions fees with Betterment, and the fees charged are competitive. Instead of picking your own investments, you indicate your long-term goals, and Betterment manages your portfolio for you – including rebalancing your portfolio periodically. You have to reach a certain account threshold in order to begin customizing your investment portfolio. Betterment requires that you invest $10,000 or that you sign up to invest $100 a month in order to participate.
If you are just getting started, and you have $100 a month, Betterment can be a good choice. At the very least, you can begin investing while you learn about more advanced strategies. And Betterment is a very reasonable choice for those interested in saving for retirement.
There are many online brokers that appeal to different investing styles. You might decide to use one broker, such as Betterment, for building your retirement account, while you use a TradeKing account or OptionsXpress for more active endeavors. Think about your own investing style and risk tolerance, as well as the purpose of your investments. Consider costs, and how they can reduce your real returns, and be sure to take this into account.
With a little due diligence, you can invest on your own, with the help of an online discount broker, and prepare your finances for a better future.