If you’re going to invest (and you should), you need a broker.
Thanks to technology and innovation, it’s possible to choose from a variety of online brokers that can provide the tools and resources that all you to get started.
How to find the best online brokerage for your money
As you get ready to choose the best online brokerage for you, here’s everything you need to consider.
1. Check account minimums
If you’re just starting out, there’s a good chance you don’t have a huge chunk of capital to invest. If you sign up with a broker that requires a high account balance, you risk penalty fees if your funds dip below the minimum.
Instead, look for an online broker with a low minimum requirement. There are plenty that allow you to open an account with $0 and start trading with as little as $25.
If you have a set amount you can invest each month, you can use a robo-advisor like Betterment and invest as little as $100 a month. More traditional online brokers such as Charles Schwab will waive their account minimums if you commit to investing $50 or $100 each month.
2. Consider the types of accounts you need
Before you open an account, figure out what you want to use the investments for. The best online brokerage for you is one that has the type of account you’re looking for.
If you hope to save for retirement, you need an account with an online broker that offers IRAs. When you’re saving for education, a more traditional broker that offers a 529 account can make sense.
Whether you want a joint account with your life partner or you want to open a custodial account for your child, check into the brokerage to make sure they offer the types of accounts you want.
3. Learn the fee structure
Fees eat into your returns and reduce what you end up earning in the long run. While fees may not make or break your portfolio, it’s always smart to reduce costs so you keep more of your money.
With some online brokers, you pay a flat transaction rate, such as $4.95 or $7.95 per trade. When you sign up for an automatic investment account, some brokers give you a break on the per-trade cost. Other brokers charge a flat percentage of the value of the account. For example, you might pay 0.50 percent annually.
When looking at fee structures, double check the fine print. Some brokers charge management fees on top of expenses associated with funds. Other brokers just roll all the costs into one annual fee.
4. Decide how you’ll trade
The best online brokerage will offer the tools you need to meet your goals. If you plan to make frequent trades and you’re a stock picker, an online broker like TradeKing, Charles Schwab, or OptionsXpress might make more sense. You pay per trade and you don’t have to worry about additional fees (unless they are expense ratios on an ETF).
On the other hand, if you’re saving for retirement and planning to invest your money for the long haul, indexing might make more sense. A different type of online broker could be an ideal choice.
Don’t forget that how you trade also includes how hands-on you want to be. There are online brokers that automatically rebalance your portfolio and optimize your trades for tax loss harvesting. The less you want to actually touch your money, the more likely it is that a robo-advisor is the best online brokerage for you.
5. Choose the types of investments you want
This goes hand-in-hand with knowing how you trade.
If you decide you want to trade options, you won’t get what you need with most robo-advisors. When you know you primarily want to invest in mutual funds, look at online brokers that offer a range of fee-free mutual funds.
There’s something for everyone out there — you just need to look for it.
6. Decide if you need any extras
Some online brokers do a great job of offering free research and education tools. Charles Schwab and Fidelity are known for their extensive tools.
Many brokers that specialize in providing trading platforms for individual stocks also offer screeners. Stock screeners allow you to choose certain traits for your investments and then find the best match.
If you don’t plan to do much trading and want to set-it-and-forget-it, you don’t need a lot of bells and whistles.
7. Don’t forget your employer’s retirement plan
Do you participate in your employer’s retirement plan? Good for you! You’re already investing.
There’s a lot to be said for investing automatically through your paycheck — especially if your employer matches your contributions. That’s free money going toward your long-term benefit.
If you already have an investment plan through your employer, that might change what you’re looking for in an online broker.
Instead of saving for retirement, you might want to invest for short-term goals like travel. Or perhaps you want to invest using a taxable account because you plan to retire early. You can’t access the money in a tax-advantaged retirement account without penalty before age 59.5. So if you want to retire early, a taxable investment account should be part of the equation.
Carefully consider your long-term goals and what you hope the account will accomplish for you as a piece of your financial puzzle. Only when you think about how all the pieces fit together can you find the best online brokerage for you.
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