Choosing the Best Online Stock Broker: A Quick How-to Guide

online stock broker
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Stocks, bonds, mutual funds, IPOs: What a dizzying array of confusing possibilities, right? The sheer conglomeration of way too many options leads me to completely sympathize with people who are too intimidated to invest.

“It’s too hard. What if I make a poor decision? What if I lose all my money?”

I get it. I hear the mantra.

I firmly believe that self-education is key to gaining confidence–just like with anything else.

If you seek knowledge, if you take an active role in your own finances and manage as much as you possibly can on your own (instead of passively letting an investment professional do everything for you) you should give yourself a pat on the back.

If you want to learn, your possibilities are literally limitless.

Choosing an online stock broker

Before you even get into the nitty-gritty of choosing the stocks, bonds or mutual funds (or IPOs or ETFs) that will work best for your portfolio, you’re going to need to choose a broker.

These days, an online brokerage firm is a way most people choose to go–it’s quick, it’s easy, there are a whole bunch of techy educational options at your fingertips, and often, this is the cheapest way to build your portfolio.

But which online stock broker? TD Ameritrade/Scottrade? Fidelity? Vanguard? Etrade? 

Good question. I want you to answer one more question before that, though:

Why are you investing?

What are your goals? Without goals, how do you know what your plan is and what type of investment to dive into? Different brokers offer different products, and your ultimate goals should end up guiding the products you end up choosing in the end.

What do you want your money to do for you? Do you want to build up a secure retirement? Save some money for a vacation to Japan? Save money for your kids’ college education? Make sure you have enough for an addition to your home?

All of the above?

I would really recommend writing down your goals because those will be what fuels your drive and inner fire. And if you do have some money socked away for something really fun, like for real, a trip to Japan, boy, won’t it be exciting to watch that grow?

Rewarding yourself with something tangible at the end of all that hard work is so incredibly, incredibly amazing. It also makes you want to invest more, and more, and more, because finally, you can see what all the fuss is about.

Here are some quick tips on choosing an online stock broker:

1. Full-service brokers (not a discount broker) are sometimes a good thing for brand new investors.

If you want to go with a discount broker right off the bat, go for it! Beware, you will pay more with a full-service broker. Note: this is just a suggestion. However, once you do become a savvy investor, it’s a possibility to then spend more time looking into discount brokerages.

2. Do your research on the broker.

What do other people say about it in forums? Have they had problems with the broker’s platforms? Frustrations with customer service? Take that to heart, and maybe even a grain of salt. Oftentimes, these online brokers serve millions of customers. If there are fifty complaints and that’s it, well, in the grand scheme of things, that’s not so bad.

3. Check on commissions and minimums.

Those will sometimes really eat away at your money–sometimes before you even start investing!

4. Are there some promotions going on with certain brokerage firms?

200 free trades if you invest a certain amount of money? A cash bonus? Something along those lines? Obviously, that should not be the be-all, end-all for your decision, but if you qualify, that could be a very good thing.

Different brokers offer diverse products. Along with all of the different online brokers out there, they also all offer different products, which can add to the confusion.

Again, read definitions of all investment vehicles out there, read the broker’s website, do your homework! Here are just a few products that different brokers may offer:

  • Retirement
  • Mutual funds
  • Stocks
  • Bonds
  • Options
  • ETFs
  • Futures
  • Forex
  • CDs
  • S. Treasury
  • Mortgage-backed securities

Next steps

Congratulations! You’re really on a roll. Now, actually opening an account is kind of fun. Some online brokers allow new clients to open an account without an initial cash deposit.

Opening a few accounts with these companies will allow you to choose the one or two you like the most. That way, you can make a more educated decision about where to invest your money. (However, many brokers do charge an IRA closing fee, so that can set you back if you do open accounts at more than one location.) Again, it’s all about doing your homework.

best online stock broker
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Emergency fund

Something I wanted to quickly mention is the importance of an emergency fund (and it’s also worth thinking about where in your online brokerage account you’ll stash the money for your emergency fund, too.)

I’ve mentioned this before, and it bears repeating: it’s really, really important to set enough money aside for an emergency fund. What if your car poops out and you have no choice but to go out and purchase one now? What if there’s a health issue with yourself or one of your family members?

Emergency fund, to the rescue.

The rule of thumb is to save at least six months’ worth of expenses, and a great place to stash that is in a money market fund because it’s liquid and offers you a little bit more yield than you would in a traditional savings account.

Be sure to take this seriously and set up your emergency fund somewhere in your online brokerage account. The other thing to note is that this truly is an emergency fund, not a “weekend getaway fund” or an “I feel like getting a new iPad fund.”

Take it seriously. You may really appreciate it one day.

The miracle of compound interest

And once you do start investing, what winds up happening before your very eyes? Compounding, that’s what!

In my opinion, there’s nothing more miraculous (with maybe the exception of childbirth) than the amazing concept of compound interest. This is why we invest, people–and this is why we invest over the long haul!

Compound interest is what takes small monetary investments and turns them into millions thirty years later.

A final note about choosing an online broker

Just remember, investing doesn’t have to be confusing and difficult, and also, nobody was born knowing everything about investing. Even Warren Buffett had to learn and teach himself along the way.

Also, ultimately, don’t spend tons of time agonizing over the merits of TD Ameritrade vs. Charles Schwab. The most important thing is that you’re actually investing and making your money work for you. That’s really something to celebrate.

Melissa is a Midwesterner with a penchant for travel (the further away, the better!) and personal finance. Previously, she worked as a writer/editor for a gardening magazine and has done lots of writing and editing for publications. Now, she works in the admission office of her alma mater, Central College in Iowa. She has special interests in reading about finance and politics, and together with her husband, spends most of her time chasing after their two kiddos.

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