9/29/2010 6:00 PM ET|
How to choose the right brokerage
Day traders and the long-term investor will have vastly different brokerage needs. Here’s how to match your investing style to your broker.
When it comes to choosing a stockbroker, customer satisfaction surveys and broker rating guides have their limits. What really matters is whether you've found the right brokerage for your needs. Who cares if all the millionaires rave about their top-drawer treatment if you can't get your broker to return calls and your account is being wiped out by excessive commissions.
Likewise, your day-trader buddy may insist he's getting a great deal, but if you need to speak to an actual person once in awhile, the cheapest trades in the world aren't going to make you happy.
Before you launch your quest for the best brokerage, ask yourself the following four questions:
- How much do I have to invest? The more you have, the more options you'll have. Unfortunately, some discount brokers that used to cater to the little guy now soak him with fees.
- What kind of investments do I want? Every brokerage will give you access to the most commonly traded stocks, but you won't necessarily have access to thinly traded issues or every mutual fund on the planet. If you want access to most hot IPOs, you may need to use a full-service broker, even if you're otherwise a do-it-yourselfer.
- Liz Weston
- How often will I trade? Many brokers link commissions and account fees to trading frequency.
- How much help do I need? Even discount brokers offer advice these days, but the more handholding you need, the more you're likely to choose a full-service broker.
Now that you have some idea of where you stand and what you need, try to put yourself into one of the following categories to see how you can find the broker that best fits your situation.
Which type of investor are you?
- The (really) small investor: You're just starting out and have less than $5,000 to invest but would like to put what you have to work in the market.
- The buy-and-hold investor: Your life is too busy to hassle with investments all day long -- you either stick mostly to mutual funds or have a portfolio of stocks that doesn't change much day to day.
- The active trader: You trade in and out of investments all day long, or at least several times a month. You're always looking for an edge that allows you to squeeze extra profit from every transaction.
- The handheld investor: No, I don't mean a Palm or a Pocket PC user. You're someone who wants help through the investing maze.
- The big wheel: You need help -- whether you know it or not. Your investable assets are somewhere between $500,000 and $5 million (if you have much more, you enter the extremely customized world of private banking, which is beyond the scope of this article).
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
VIDEO ON MSN MONEY
Don't be fooled by the propaganda. "Broker" is another word for salesman. When you think stock broker, think used car salesman. Also, the game they pitch - you can beat the market! - is for losers. If you're wise, you'll stay away from them. Go directly to a not-for-profit mutual fund company, like the one in Valley Forge, PA, and buy low-cost index funds or ETFs. You'll beat all the schmos and their brokers, especially over extended periods of time.
When a security like Kinder Morgan (NYSE: KMR) pays a share distribution, which stockbrokers allow clients to receive and hold fractional shares in their accounts?
When a cash dividend is not enough to buy a full share, which stockbrokers allow clients to reinvested into fractional shares?
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