When it comes to investing, there is no one size fits all approach. Some investors are young and just starting out. They can afford to take more risks when investing. Other investors are older and with retirement looming, they are looking to take on less risk. Because of this, you have to find the right online broker for you.
This is why I created my online broker comparison chart. The goal was to help you find the right online broker by listing all the features and costs of each broker.
What I didn’t realize is that many of you would still have questions. This is why I am writing this post. I won’t be able to individually tell each one of you which online broker you should choose to invest with. But I can give you some guidance on which ones to consider and which ones to steer clear from. This of course depends on your goals and current situation.
Note that you might end up with a couple options to decide between when investing. Once you have your list narrowed down, you can refer to my online comparison chart I linked to above. That chart will help you further decide. From there, you can click on my broker reviews to get even more detailed information.
If after all that, you still have questions, feel free to reach out to me. I’ll do my best to answer any lingering questions you may have.
The Right Online Broker That Meets Your Needs
Best Online Broker For Beginners: Betterment
For first time investors who want to start investing and learn as you go, you can’t go wrong with Betterment. With Betterment, you take 10 minutes to open an account and set up a monthly transfer, along with choosing your goal. That’s it. Now you can spend your time learning about investing in greater detail.
The reason why I recommend Betterment for beginners is simple. They allow you to get started fast and they invest you in a high quality, low cost diversified portfolio. These are the basic building blocks when it comes to investing.
Since Betterment has these covered, you can take your time learning more about investing. All the while your money is in good hands.
If you sign up today, Betterment will give you up to 6 months for free!
Best Online Broker For Dividend Investing: Motif Investing
Dividend investing is glamorous now because of super low interest rates. You can thank the Fed for this. Everywhere you go, you read more and more about dividend investing. Heck, I even wrote a post about it along with stock recommendations. If you are considering this strategy, which broker do you choose?
My favorite is Motif Investing. The reason is simple: it can cost a lot of money to invest in stocks. Even if you go with the lowest priced online broker, you are still paying a lot of money. This is because to create a diversified portfolio you have to make a decent number of trades.
With Motif Investing, you keep costs in check. Instead of paying $7.95 (or more) for each trade you make with other brokers, with Motif you pay a flat fee of $9.95. I know this is more than the other guys, but their fee is one time.
Let’s say you are investing $2,000. You are going to buy shares of 3 different companies. If you go with the broker that charges $7.95 per trade, you are looking at a total commission of $23.85.
But with Motif, you are only getting charged $9.95 for those 3 trades. You saved yourself $13.90! Now I know $13.90 isn’t a game changer, or is it?
If you trade 4 times a year for 20 years, you would have an extra $2,000 just from the savings. Add in the dividends you would earn along the way and your savings is even greater.
The only downside to Motif Investing is that it doesn’t allow for you to reinvest dividends. While not great, it isn’t the end of the world either. Any dividends you earn are deposited into your cash account and you can choose to invest that money at a later time.
If you start investing with Motif, you’ll get $150 for free.
Best Online Broker For Passive Investing: Schwab/TD Ameritrade/Motif Investing
If you are like me, you are a passive investor. If you aren’t sure if you are a passive investor, you can check out this post to find out.
When it comes to picking the best broker for passive investing, you have options. What do I mean by this?
What you types of investments you invest in will determine which broker you should choose.
- If you are a passive mutual fund investor: your best option is Schwab
- If you are a passive ETF investor: your best option is TD Ameritrade
- If you are a passive individual stock investor: your best option is Motif Investing
Each of these are the best options for these types of investments because of costs and selection. They all keep costs to a minimum while at the same time have a large assortment of choices to pick from.
Now, if you are like me and want a mix of all the above, then my recommendation is Schwab. They are my primary broker and I get exactly what I need in mutual funds and ETFs and never pay a trading commission.
Best Online Broker For People Scared Of Investing: Betterment
If you are scared of the stock market, then the right online broker for you is Betterment. Betterment works because it takes your emotions out of the equation by automating the process. This is the biggest downfall for most investors.
How do they take your emotions out of investing? When you invest on your own, you might get scared to invest because the market has been dropping every day. You fear that putting money into the stock market is pointless since the market is losing value.
But no one can time the market. No one knows when the market will drop or when it will rise. Because of this, you have to keep investing on a regular basis regardless of what the market is doing on a given day.
With Betterment, you invest every month, ignoring what the market is doing. Hence, your fear is under control and you do the right thing – you keep investing more and more money for the long haul.
By automating the process, you don’t have to think about investing. It just happens for you. So while you are deciding whether to invest or not, Betterment already has done it for you.
Your emotions get in the way of investing when the market is rising too. Many investors allow their emotions, in this case greed, to tell them to invest. You cannot listen to your emotions when investing. It won’t work out. You won’t make money over the long term.
Take your emotions out of investing and you will see a better result when you invest your money.
Best Online Broker For Mutual Fund Investing: Schwab
You will find that many online brokers charge you a fee for investing in mutual funds. But some brokers don’t. For this reason, if you want to invest in mutual funds, your best option is Schwab.
The reason I like Schwab is because you can invest in over 3,000 mutual funds for free. While that number is great, I love their in-house Schwab mutual funds.
The reason is simple. They are index based, so management fees are low. So low they compare to Vanguard. Also, they allow you to get started with a measly $100 and invest with as little as $1 your first investment.
When I was first starting out, I was investing $25 a month. It was all I could afford but I loved the option of putting my money to work.
If you decide to go with Schwab, they are offering my readers a $100 new account credit.
Best Online Broker For ETF Investing: TD Ameritrade
Some readers might know that Schwab also offers a good selection for no fee ETFs as well. But TD Ameritrade is better because you can trade iShares and Vanguard ETFs without a fee.
To see the entire list of no fee ETFs with TD Ameritrade, check out this link.
I will warn you about TD Ameritrade. For me, I don’t like the site navigation much. For some readers, it may be fine, but I struggle to find what I am looking for. So before you decide to invest with them, be sure you are comfortable navigating their website.
Best Online Broker For Those With Little Money: Capital One Investing
Why are they ideal for those with little to invest? Because you can invest a small amount of money (say $25) and buy fractional stock shares. A fractional share is when you buy 2.25 shares. It isn’t a whole share. Most brokers only allow for you to buy a full share, so you will never be able to invest your full amount.
Let’s say you are investing $25 and the stock you are buying is trading at $70. Most brokers will make you wait to buy until you have $70. Capital One will let you invest that $25 and buy a fractional share.
It costs you $6.95 to trade a stock with Capital One Investing. But you can set up a recurring investment plan that has you buy more shares each month. When you do this, the price drops to $3.95. They will even reinvest dividends for you for free.
Best Online Broker For Stock Ideas: Motif Investing
With Motif, you can browse through other investors motifs. If you like what you see, you can choose to invest in it. If you don’t find a motif you like, you can create your own. Just what are some motifs out there?
- Precious metals
- High yield dividends
- Biotech breakthroughs
- Private equity
- Robotic revolution
- Shale oil
- Cyber security
The list of options is almost endless. And as I mentioned before, you can trade a motif of up to 30 stocks for a flat rate of $9.95.
Best Online Broker For Trading Options: TradeKing
As of this writing, an option trade will cost you $4.95 plus $0.65 per contract. This is at least $2.00 cheaper than other firms.
On top of being the lowest priced options broker, TradeKing has other great features too.
First, they have tons of resources to help you with options trading. This is great for both new and seasoned options traders.
Second, they have a great trading platform. Over the years, they have acquired other firms to improve their offerings. This is smart on TradeKing’s part. Don’t waste money trying to develop something when another company is already doing it. Just buy that company instead.
Best Online Broker For Those With Sizeable Assets: Vanguard
Now when I say sizable, I mean around $50,000 or more. Why Vanguard? With that amount of money you can take advantage of Vanguards Personal Advisor Services. For a small fee (just 0.30% annually), you get a personal advisor
While many of the robo-advisors are good, Vanguard is better in this regard because you are talking to a human and have some say into how your money is invested.
10 Things To Consider Before Picking The Right Online Broker For You
So now that you have an idea of the different online brokers and what they offer, you need to make a decision. As I mentioned at the beginning, I can’t tell you which one to pick. You have to decide. But I can help you keep some things in mind when you are trying to decide.
#1. Learn about the history of the broker. This is key. Some brokers have made acquisitions to offer better service and products for clients. They would be a firm you want to consider if they fit your needs.
If you find that an online broker has a lot of complaints, you may want to look elsewhere.
#2. Don’t Let Price Be The Only Factor. While paying the least is ideal, it shouldn’t be the ultimate decision maker for you. Sure a firm might have rock bottom pricing but what are they lacking in other areas? Inconvenient customer service hours? A poor website?
#3. Customer Service Is Important. While you don’t think you need help, the time will come when you have a question and need to talk to customer service. Make sure the broker you are considering has great customer service. Otherwise, you will be pulling your hair out trying to get help when you need it most.
Make sure they have convenient hours and have the option to chat instead of calling as well.
#4. Know Minimums And Fees. Many online brokers have a minimum initial investment. Make sure you know this and have this amount of money to invest before you pick on one. Many times the minimum isn’t bad, like $1,000. But in some cases, like mutual funds with Vanguard and their $3,000 minimum, it can be too steep.
Likewise, know what extra fees they may charge. Most of the brokers listed here don’t have inactivity fees or other fees like that. I can’t stand those fees. But many do have fees for closing your account and transferring it.
In some cases the new broker will reimburse you for this charge. But it is best to know this before you even invest with a broker.
#5. Look At All Offerings. While you might be a stock investor now, you may want to invest in ETFs down the road. Make sure whichever online broker you pick, they offer a wide variety of choices. The last thing you want is to have multiple accounts all over. No broker will be best for every type of investment, but make sure they have a decent offering of the various types of investments.
In some cases, you may even consider the brokers credit card if they have a relationship with a bank. For example, if you open up a Schwab credit card, you get 1.5% cash back that goes into your investment account. That is a good extra to think about.
#6. Take Bonuses Into Account. I’ve listed any current bonuses that these brokers are offering. Be sure to take them into account. As a stock trader, getting $1,000 in free trades is a big deal.
But as I mentioned with commissions, don’t let the bonus be the ultimate factor that sways you.
#7. Understand Trading Alternatives And Costs. In an ideal world, you will place the trades online yourself. But in some cases, you might need to get help. The brokers listed here don’t charge extra for online trades. But many do charge a fee for phone trades or trades you make with help from customer service. Make sure you know the cost involved.
#8. Play Around The Website. Nothing is more painful than a website that is impossible to navigate. Take some time to check out the websites of the brokers you are considering and see how user friendly their site is.
#9. Check The Site Often. In addition to making sure a site is user friendly, you want to make sure it is stable. Check at various times a day to see if the site slows to a crawl or if it performs just as fast each time.
#10. Know How Cash Is Handled. Odds are you will have idle cash sitting on the sidelines. While interest rates are low now, they won’t always be. Check to see how your cash is invested and make sure you are comfortable with this before deciding on a broker.
I hope after reading this post I cleared the air and have helped you to find the right online broker for you and your needs. There are a lot more brokers than the ones I mentioned. But these are the ones I have experience with and feel comfortable recommending to you.
Be sure to take your time and weigh out various brokers so that you can find one you are happy with the first time. I’ve gone through the process of switching brokers in the past. While none of the transfers have been painful, none have been a breeze either.
Once you choose your broker and start investing, be sure to sign up for a free account with Personal Capital.
You can track your investments, review your allocation and see the investment fees you are paying. Doing this will ensure you are on the path for reaching your investing goals. If by chance you don’t have any investing goals outlined, then you need to read that post right now!
[Photo Credit: Steve Jurvetson]