Do you have an interest in stock investing but are not sure where to start? Perhaps you’ve studied the stock market extensively and you’re ready to apply what you’ve learned. Regardless of where you are, you have to start somewhere. And the first step in your journey (other than learning about the stock market) is to find the right broker.
In the world of stocks, there are two types of brokers:
- Full-service brokers
- Discount brokers
Full-service brokers come from the early days of stock investing – when you had to call someone on the phone in order to facilitate a trade. Their fees were expensive, which meant it was only an option for people with a higher net worth.
Since the rise of the Digital Age, the stock market has become more accessible to the “Average Joe.” These companies allow people to make trades on their own through online resources, and because of this they charge lower fees. This is why they’re called “discount brokers,” since they offer a cheaper alternative for the little guy. The downside to this type of trading is that you get no investment advice, which means that you will have to make your own decisions. And that means more risk – especially if you don’t know what you’re doing.
What to Invest
If you’re new to investing, it’s better to go with mutual funds or bonds, as they are less risky than regular stocks. But you do have to be aware that mutual funds come with management fees, as they are run by someone else who makes investment decisions in the background. They will buy, sell, and trade stocks and other securities in any way they see fit. So, you have no control over what happens inside the fund. Still, if you find a good mutual fund, you can get a solid return on your investment.
Stocks can be a costly investment, especially if you do a lot of trading. Online brokers will charge a fee every time you make a trade, and that will vary with each broker. They charge a “trading fee” every time you buy or sell a stock. Most online brokers charge a flat fee, but there are some that charge a percentage. You want to weigh these fees in carefully, as it can impact your overall return.
Tip: try opening an M1 Finance Roth IRA, which charges no fees to buy stocks. And if you buy Motley Fool stock picks, you’ll have a great chance of beating typical stock market returns.
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Trading Fees and Tools
Like I said, trading fees will vary with each broker. So, you want to weigh your options carefully because while they may seem small, they can add up.
Now, as I said before, most online brokers charge a flat fee, and there are two in particular that I want to focus on: TD Ameritrade and TradeKing.
TD Ameritrade
They are considered one of the top online brokers in the country, as they have built a reputable brand that existed before online brokers even existed. This gives them an edge over many other companies.
While their fees are competitive, they are not the cheapest. But you will have to decide by the end of the article if they are worth the extra cost. They charge $9.99 for every stock trade, but as you will see in the next section they are not the cheapest in the market.
TradeKing
TradeKing is a fairly new company, but it still has a pretty respectable reputation. They offer some good tools to help investors, and their fees are lower than many of their competitors. They charge $4.95 for every trade, which you can see is about half the price of TD Ameritrade. I won’t say that TD Ameritrade isn’t worth the investment because you get a lot for the extra cost. The reason why is because they offer some excellent trading tools that can help you keep up with what’s going on in the market. TradeKing has some great tools as well, and they have improved in recent years. In fact, their charts are very easy to understand and pleasing to the eye.
Betterment
It’s fair enough to say that Betterment is not the most comprehensive investing platform on the market, but they are definitely one of the cheapest. While this company might not be the best choice for the seasoned investor, it might be a good option for someone who is just starting out. They have a lot of automation tools that can help you to maximize your portfolio’s performance, but there’s not a lot in the way of customization. This is why it might not be the best option for someone who is more experienced.
In terms of fees, they charge a percentage, which is different from many other brokers (including the two I have discussed previously). The percentage ranges from 0.15% to 0.35%, but it depends on the asset being traded. You can see that we are dealing with fractions of a percent, which is a very small number.
Diversification
Some of you might have heard this word before, but even if you haven’t it’s an important concept for any type of investing. In short, it’s another way of saying that you shouldn’t “put all your eggs in one basket.” In other words, you should spread your money across different types of industries, and you should invest in a variety of assets. This will help to minimize your risk in the market.
Final Thoughts
Investing is a game, and like any game you have to know how it is played. Otherwise, you are setting yourself up for failure. While there are many different rules and techniques to this game, there is one thing you need to have in order to succeed. And that is to have a plan. Investing is simply a means to an end, so you have to know what it is you want to accomplish.
