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Online Brokerage Company Guide
Investing is an important step toward financial security and there are many financial institutions ready to assist individuals with their investing needs. From banks, to full service investment firms, to discount brokers, there are many options available for investors and while it is always nice to have a wide array of choices it can also lead to confusion. Is a bank with full service brokerage the best choice? What about a well- established company like Smith Barney? Are the differences significant from one brokerage company to the next?
In the past, investing money was conducted primarily by phone or in person. Investors would select a brokerage company, find a personal financial advisor within that company, deposit some money, and start to invest. A phone call or visit to ones' personal advisor was necessary to approve and/or execute a transaction and the lag time between approval and the actual purchase/sale was sometimes substantial. Today, however, the business of investing is conducted in a different manner. Traditional investment brokers still exist, but thanks to the advent of the internet, investments can be conducted any time during the investment day by simply logging into ones' personal investment account, entering the appropriate stock ticker symbols, codes, etc., and then clicking a mouse. Online trading has made investing easier than ever before, but they also present some new challenges. In this buying guide, both novice investors and advanced investors will learn some of the key differences between online brokerages in order to make the best buying decision.
What are the Important Considerations to Make Before Selecting an Online Brokerage company?
Commissions/Fees: To many investors, commissions and fees rank as the most import consideration when selecting an online brokerage. Generally speaking, fees are lowest among discount brokers that offer few (if any) additional services beyond the ability to buy and sell stocks and other securities. Fees are slightly higher for brokerage companies that are more full- service in nature and/or those that offer extensive features/investment tools in their respective online sites.
Services: All online brokerage services offer the ability to make investment purchases and sales online, obtain stock quotes, conduct basic research, etc. But some online brokerage companies offer additional services that go above and beyond the basics. Examples include face- to face service (investor meets a financial advisor in person), margin accounts (these allow an investor to buy investments on credit), check writing capabilities, debit cards, etc.
Assisted Investing: All online brokerage companies offer self- directed investing via the online site, but some investors (particularly new investors) may not feel completely comfortable using a computer mouse to make their own investment purchases and sales. For these individuals, it may be necessary to seek out an online brokerage service that offers the ability to speak directly to a broker to make a trade and/or one that offers the ability to make trades via a touch- tone telephone. Commissions and fees will be higher using these assisted trades but for some, the added peace of mind will make the extra expenditure worthwhile.
Research Capabilities: If investors wish to conduct their own stock trades and basically operate entirely in a self- directed mindset, then research capabilities are very important. Most every online brokerage service- even the least expensive among them- offers at least the minimum investment research tools (like financial statement information on thousands of companies, industry averages and comparisons, financial ratios, etc.) but for the serious investor, more advanced research capability is necessary to find the most lucrative investment opportunities.
Investments offered: Every online brokerage service offers the ability to buy and sell investment securities like stocks, but what if one's investment desires go beyond the ordinary? What if an investor wants to purchase corporate bonds, precious metals, Treasury securities, or Initial Public Offerings (IPO)? What if an investor wants to open an IRA? Some online brokerage companies offer these investment options, but others do not.
Minimum Deposit Requirement: Most every online brokerage service requires a minimum balance to open an account, and this minimum can range from $500 to $2,000 or more. Discount brokerage services (those offering the most minimum services) require small minimum deposits while full- service investment firms require the largest minimum deposit.
Some brokerage firms waive the minimum requirement provided that an automatic investment account is established. With an automatic investment, the online brokerage service is authorized to withdraw money from an account holder's bank account on a specific day each month. By establishing this type of account, some online brokerage services will waive the deposit requirement, providing new investors with an opportunity to build an investment account a small amount at a time. This is an attractive offer for those who want to start investing, but do not have the necessary capital to open up an account.
Investment Advice: Finding an online brokerage service that offers live phone consultation to conduct investment transactions is only the beginning for some investors. Some individuals, either due to lack of investment experience or lack of time to conduct research, would like to find an online brokerage service that offers investment advice. These investors want an online brokerage service that is more than just online stock trading- they want a service that guides them and leads them to possible investment opportunities.
Best Bets- Which online brokers are the best?
Best for Low Fees: If investors want low fees, there are still some very inexpensive brokerage companies that charge very little to execute stock trades and other transactions, provided that the investor conduct the trade via the web site, without assistance. One example is Scotttrade.com, a discount broker that (presently) charges only $7.00 per market order trade. Another inexpensive broker is Sharbuilder.com, charging only $9.95 per trade. In addition to these low charges, many online brokerage services offer a set number of free trades as an incentive to get you to open up an account. E-Trade, for example, offers 100 commission- free stock or option trades upon establishment of a new account. Investors, however, need to be aware of the limitations of offers like these. With the E-Trade offer, the 100 free commissions apply only during the first thirty days. Thus, unless an investor does a very large amount of trading, this deal will prove to be less valuable than it first sounds.
Best for Novice Investors: Among the best online brokerage services for online brokerage accounts are Sharebuilder.com, Scottrade.com, and Fidelity Investments. What makes these online brokerage services good for newer investors is their intuitive web sites, their ease of establishing an account, their reasonable fees, and their tendency to hold the investor's hand and guide them through the investing process, if desired.
Best for Experienced Investors: It is difficult to make a recommendation for experienced investors because their attitudes and desire for assistance and advice vary greatly. Some experienced investors prefer to conduct all of their own research and make all of their own investments purchases and sales without the aid of a financial advisor. For these individuals, a discount broker like Scottrade.com would make the most sense because the services are better than average and the fees are low, making Scottrade.com attractive to those who make frequent trades. On the other hand, some experienced investors like to be pampered, and they are willing to pay higher fees to have a personal financial advisor who will conduct research, make investment recommendations, and execute the purchase or sale. For these investors, a full service firm like Merrill Lynch makes the most sense.
Best for Service: If personalized service is your desire, then the best online brokerage companies are going to be those that offer an investment advice as well as actual offices so that investors can meet with a personal advisor and discuss investment strategy. Possible options would include Merrill Lynch and Charles Schwab-two investment brokerage companies that have been around for a long time and have a proven track record of success and respectability. Investors should keep in mind, however, that additional service like that offered by Merrill Lynch and Charles Schwab does carry a price, and that price is going to be greater commissions and fees.
Best for Those With Limited Funds: Most all online brokerage services have a minimum required deposit to open an account, and these minimums can range from $500 to several thousand dollars or more. But one online brokerage service that is very lenient with opening balance requirements is Sharebuilder.com. With Sharebuilder.com, an account can be opened with any amount of money, and stock purchases can begin immediately- even if there is only enough money in the account to purchase a single share or fraction of a share. Sharebuilder.com also offers an automatic investment plan whereby Sharbuilder.com will automatically deduct money directly from one's checking account to fund the Sharebuilder.com account. Many other online brokerage services offer the same service, so this is nothing original. However, Sharebuilder.com has the other online brokerage companies beat once again when it comes to thinking small: The automatic investment option can be authorized to deduct as little as one dollar per month; helping new investors slowly, but surely, reach their investment goals.
Best for Research Capabilities: Any self- directed investor would agree that investment research tools are an important component of any online brokerage service. And while most all online brokerage services offer research tools, the one that offers the most and best is Fidelity Investments.. This company is best- known for its mutual fund family, but Fidelity has expanded far beyond mutual funds and 401k plans and it now offers full- service brokerage accounts, and these include access to excellent investment research tools. In no time at all, investors can research different companies and find a bargain stock that fits a precisely defined set of criteria.
Best Overall Online Brokerage Service:
Taking all of the above factors into consideration, the best overall online brokerage service is Scottrade.com. The reasons for ranking Scotttrade.com number one are obvious. It offers very low fees, an intuitive web site, investment education materials, excellent research capabilities, and personal guidance. Also, it offers something that many other discount brokers do not: Branch office locations, offering personalized service. Many other online brokerage companies offer branch offices, but most of them rank in the upper half when measured in terms of commissions and fees. With Scottrade.com, investors not only get low commissions when they trade stock or execute a purchase or sale of different securities, they also get access to a first- class web site and the option to visit a branch office for personalized service, if they desire. These positive attributes place Scoottrade.com at the top of the online brokerage service rankings.
Some Popular Online Brokerage Services Include:
- TDAmeritrade.com
- Scottrade.com
- Etrade.com
- Sharebuilder.com
- ML.com (Merrill Lynch)
- Fidelity.com
- Schwab.com
- Firstrade.com
- OptionsXpress.com
Additional Internet Sources for Information on Investments and Online Brokerage Service Include:
Investingonline.org- This web service contains advice on opening an online brokerage account, ratings of online brokerage services, and general advice on getting started with online investing.
Investopedia.com- This online service is powered by Forbes media. It includes, like its name suggests, an encyclopedia of knowledge about finance and investing.
Brokeradvisor.com- Newsletters and special reports relating to brokerage services are offered at Brokeradvisor.com. Some of the services in this web site are free, but others will cost you once the free period has expired.
Moneycentral.msn.com- With MSN MoneyCentral, investors can learn about financial planning, taxes, banking, and, of course, investing. This is a good, all- purpose web service that helps investors become better acquainted with investing and enhance their financial IQ.
Dozens of online brokerage services exist and the numbers continue to grow as more and more individuals seek new and better ways to invest. Many factors have to be considered before selecting a broker, like required deposits, commissions and fees, personal service, and much more. It is the responsibility of every future investor to examine the different online brokerage investment options carefully before making a final decision.
For those new to the world of online brokerage, the advice is simple: Do the necessary homework, educate yourself on investments, and consult with online sources to determine the right online brokerage service for your own individual needs. It can be the difference between making a lucrative investment and watching in agony as your investment declines in value.
