HOW TO CHOOSE AN ONLINE BROKER?

The first step to buying stocks is to choose an online broker.  This is basically a middleman to sell you a percentage of a company you may be interested in. That percentage or fraction of the company is called stock in the company or a share of the company.

Buying stock is pretty much like everything else in our lives; if you want to buy groceries you go to the grocery store (you don’t go out to the farm and pick food yourself), if you want to buy shoes you go to a shoe store. So if you want to buy stock, you usually go through a broker. But, like almost all situations, this is not the only way, it is however the most common option these days if you use the internet. Industries change as technology advances. Currently, the financial industry is seeing more and more options and types of brokers, which is good for people like us, the retail investor.

 3 THINGS I WANT IN AN ONLINE BROKER

1.) No minimum opening amount required.

2.) No Fees (or low fees).

3.) Does it offer the kind of investment vehicles I’m interested in? (Think long term when possible.)

1. – NO MINIMUM OPENING AMOUNT REQUIRED

I think one of the best characteristics you can look for when you choose an online broker, is one that has no minimum investment or a low minimum investment to open an account. 

The minimum investment is the amount of money you need to sign up, open the account and be able to get started buying stocks.  Some online brokers let you sign up without any amount, while others require you invest at least $500 – $2500 dollars. If you need $2500 dollars to start, it’s going to make it that much harder for some people to begin.  Don’t let that stop you. Skip that broker and find a different one. 

There are more and more brokers out there that don’t require any money to begin. And you can always change brokers later if you find a different one you like. Most brokers will even pay the transfer fees required to move from one brokerage to another because they want your money.

ONE REASON TO INVEST IN STOCKS

When I first started looking at stocks, I wanted to know how much money I needed to invest the first time.  Could 10 dollars buy a stock? Could 50 dollars? There was no way I could afford more than $50 dollars Would that even get me anything? Yes it will, and you should seriously consider it.

One of the pros of using your money to invest in stocks is that there is such a wide range of prices for companies so even if you just have 10 dollars, you can still buy at least 1 share of a company. It may not be the best company to put your money into, but it is an option. The more research you do, the better your chances of your investment paying off. Just because a stock is high or low, does not tell you enough to know whether it’s a good investment. There are many other factors to consider.

The important point is, you don’t need a lot of money to get started. You just need to start the habit. If you’ve ever had a habit of doing anything before, you understand how important that is. In time you’ll improve at it, as long as you keep doing it. 

Create a habit of saving. Benefit from a habit of investing. Enjoy a habit of building your wealth.

IMAGINE IF YOU MADE INVESTING A HABIT

A habit means it starts to happen almost naturally at some point. You don’t even think about it, you’re just doing it…cause that’s what you always do. When you develop a habit of building investments, imagine how helpful that will be to your life over the long run. We’ll all develop various habits during our lifetime. Be conscious of the ones you choose. Running is good though, keep running if you can.

2. – NO FEES OR LOW FEES

How much money is your broker making off of you? Companies are designed to make money. Which means we, the retail investor, are the product. Luckily the internet gives us tons of information that can help put us back in control.

Of course any broker you use is going to try to make money off of you in one way or another. So it’s your job to know your options, keep up-to-date, and choose a broker that has the lowest amount of fees — preferably none. Otherwise, over a long-term period, you’re passing up utilizing your own money so you can help make your brokers wealthy instead.

Recently as more and more roboadvisors come on the scene, some of them are offering no fee trades.  Other companies like Vanguard allow you to trade it’s own investment products with no fees as well. If your broker is charging you to make a trade, that is money that could have gone towards the investment. If you’re paying to invest in a mutual fund or paying an expense fee on an ETF, that’s money that could have gone towards building the investment that you’re instead choosing to give to your broker.

You’re not only sacrificing 5 dollars up front, but you’re sacrificing what the 5 dollars could earn over the course of the investment. Imagine how that adds up over the long term. Once you factor in compound interest, that amount turns out to be quite noticeable. So do your best to find out what fees each company charges and search for the one that has the lowest / least amount of fees when you choose an online broker.

3. – CHOOSE AN ONLINE BROKER THAT OFFERS THE TYPE OF INVESTMENTS YOU WANT TO INVEST IN

If you’re new to investing, knowing what you want to invest in can be a little tricky. Actually that can apply to the experienced as well. But when we’re new, we may not even know what types of investment vehicles exist, let alone which are the best to choose for our situation.

One of the best ideas I read presented the challenge of learning about at least 20 different investment vehicles (stocks, bonds, etfs, REITS, mutual funds, options, real estate, etc). The idea helped open my eyes and helped me realize that there are many different tools for making money and they can fit all kinds of situations.

Different strategies exist for different people because we’re all at different stages and have different goals and levels of comfort when it comes to what we’re willing to risk.

Some people only want to invest in individual stocks of companies. Others would opt for diversification and choose mutual funds or ETFs. And some may turn to bonds for safe, low risk returns on their capital. While you can always transfer your money to a different online broker, it’s good to try and get an idea of what types of investments you’re interested in ahead of time and double check that the broker you’re considering offers those investments. Why go through the hassle of changing if you don’t have to?

BE CAREFUL OF ANALYSIS PARALYSIS

A simple google search of “best online brokers” can yield plenty of comparison sites to get you started. But above all else, consider the idea of just getting started. Time is our most important resource so the sooner you get started, the more chance you have of learning and improving.

If you’re learning to paint you can read books about how to paint all day, but I’m willing to bet you’ll improve the most once you actually start painting. 

COMMENT BELOW

What are your criteria for an online broker? I’d love to hear your thoughts below. If you’re just starting out, what are you looking for or what questions do you have? If you’ve had experience with online brokers, leave a comment on the things you wish you had looked for or consider most important now. We can all help each other make better choices. That’s what this blog is all about!