Choosing an Online Broker – entry 003
(This post is part of a series of posts about being an investor newbie)
As mentioned in my previous post, this week I am adding a bonus post, since I felt it was time to go ahead and set up an online broker. (If you are new to this blog, the background of this series is found by clicking here, and the previous post is found by clicking here).
As it turns out there are a lot of online brokers to choose from, but I am going to stick with one of the more well-known ones. Why? Because I am trusting them with my money! For the same reason that I don’t get money out of ATMs that are not from a major bank, I want to make sure I am using a reputable, national broker. So I narrowed my choices down to the following:
- TD Ameritrade
- Charles Schwab
These were the ones listed by Nasdaq as their Online Brokerage Partners (Their website: http://www.nasdaq.com/investing/online-brokers/). They listed some others I was not familiar with as well, but I decided to stick with these based on my comfort level.
I also saw Motif Investing out there. It was not listed above and is designed for a different type of investing. I may look into this one further at a later date. Their “motifs” are essentially baskets of stocks (about 30) for various reasons (cancer research, online gaming, technology, etc.). It only costs $9.95 to trade motifs and just $4.95 for single stocks! But like I said, I wanted to stick with a traditional company first, before I venture into something relatively new.
TradeKing is another online brokerage I have seen heavily advertised. Their fee is only $4.95 per trade and they were designated “Best in Class ‘Commissions and Fees’, and Best in Class ‘Offering of Investments'” in 2016. They are also ranked #1 in Customer Service by Money magazine. I sometimes wonder why I did not choose them.
If you are looking to trade actively and you need stock alerts, you should check out K Capital Advisors. I am not a fan of day trading so I do not use them or any similar service or newsletter, but they apparently offer alerts during prime trading opportunities. If this is your type of trading and level of commitment, then give them a try and let me know your evaluation of them.
Choosing the Online Broker
Narrowing the list down was simple at first. Scottrade and Fidelity require a $2,500 investment to open the account. Since I am investing $1,000 I could eliminate these two from my list right away. I will say that Scottrade had trading fees of only $7 which is the lowest among all of the online brokers. Bummer that I can’t choose them. Fidelity had the second lowest fees at $7.95. Ugh. It stinks to be too poor to be able to afford the cheaper trading sites!
The Charles Schwab website was interesting and it looks as though they have all kinds of great features. After digging around a bit I found what I was looking for. Their prices are good. They charge $8.95 per trade. This is important because the more you pay per trade, the greater return you have to earn just to break even. They even have commission free ETFs (Exchange Traded Funds). I will explain these later, but lets just say it is a good deal. They require a $1,000 minimum account so I would just make it.
The E*Trade website was great. It was clean and it was very easy to find what I wanted. It was like the website was designed for the new investor. I easily found my way around their site and decided I really liked E*Trade. The cost was $9.99 per trade and a minimum of $500 was required.
The final site was TD Ameritrade. TDA was also easy to navigate. They make everything seem like a simple process as well. Their trades are $9.99 and they have no minimum. They have a great comparison tool on their website to compare them to their online competitors. I discovered that TDA has over 100 commission free ETFs. I also found out that E*Trade has 100 (I did not notice that on their own website).
Now, before I give my conclusion I have to say – setting up an account for a corporation is different than one for an individual and may have steered my conclusion a bit. As it turns out, it is easy to set up an account… unless you are an investment club, a partnership, a corporation, etc. Then you cannot set the account up online. You will have to use a fillable PDF form they make available and complete the form, print it, sign it and send it back in.
My conclusion? All three have something great to offer. E*Trade has the easiest to navigate website, with TDA coming in a close second. TDA has several #1 rankings from trusted business magazines for their online trading including rated the #1 online broker for new investors by Investor’s Business Daily (IBD). Charles Schwab has the most resources and cheapest trades at $8.95, but their website was more difficult to navigate – perhaps they need a separate portal for online trading. I chose….
Online Broker of Choice
TD Ameritrade. I think they had a more streamlined process for opening an account as a corporation (We can fax it in. E*Trade required a notary to sign the document and mail the originals. Since I live in a different state than my business partners – that becomes cumbersome). Also, I have really come to like and trust IBD and put some “stock” into their ratings. So by the time this is posted, I will have sent some paperwork to my business partners and we should be sending in our application anytime. In the meantime, I can continue to research investing methods and begin analyzing individual companies so when the account is finally open, I can make my first trade.