When you finally feel it’s time to invest, where do you go? How do you start?
Keep the fees down with more money in your pocket!
It’s a very important decision when choosing a brokerage account provider. Nowadays, most of them are very similar and offer very comparable services, but there are some out there that will charge $30 per trade instead of less than $10 per trade if you don’t look closely. An expensive brokerage account can really eat up into your potential ROI with too many fees. Here’s the time to learn how to avoid those by looking at some options. Brokerage accounts and mutual funds that charge high fees will take a significant portion of your portfolio. Keep in mind that a typical mutual fund account can take over $150,000 in a lifetime due to mutual fund fees.
Here are a few recommendations. These are the current prices per trade, as of June 2015.
- Fidelity – fidelity.com – Trades are $7.95 per trade for stocks and ETFs (free trades on ETFs held on their platform)
- Vanguard – Vanguard.com – Ability to setup an ETF only account with free trading with a minimum requirement of $3,000
- Scottrade – scottrade.com – Trades are $7 per trade for stocks and ETFs
- Capital One Sharebuilder – sharebuilder.com – $3.95 per trade for stocks and ETFs and a great automatic investing strategy
- Computershare – computershare.com/investor – $0-2 per trade, but all accounts are setup as automatic investing strategies
- Wells Fargo Shareowner Online – https://www.shareowneronline.com/ – $0-2 per trade, but all accounts are setup as automatic investing strategies, very similar to Computershare
The first three account types are low cost brokerage houses that allow you to buy and sell securities on the open market. This is an amazing advance in technology due to the expansion and growth of information from the internet over the last 10 years. Use this information as a comparison to historical prices about 20 years ago where most brokerage houses charged between $20-$30 per trade. Think about those fees now and how tripling the amount of fees could eat up the potential investment, especially over time.
The last two options (Computershare and Wells Fargo Shareholder) can be quite useful for those of you who look at investing as a monthly payment to yourself. Basically how it works is you can set aside a specific dollar amount (instead of individual shares) each month and get charged a much lower amount. Specific dollar amounts are so much easier to allocate in regards to a monthly investing strategy that was discussed earlier with monthly payments to yourself in a different account. It’s always easier to buy $50 worth of stock than it is to purchase one share of stock trading at $56.50.
Computershare and Wells Fargo Shareowner Online are platforms that only offer automatic investment plans. The first noticeable option within Computershare and Wells Fargo vs. traditional brokerage accounts is that there are fewer options. There are over 1,000 different investment options here ranging from stocks, ETFs, and Real Estate Investment Trusts (REITs). The companies that are registered and are available for investments have outsourced their investment plans to Computershare and Wells Fargo for both internal and external investors that want to invest with them. A major benefit to using these services is that for any distributions (dividends) from the company, they will either send a check or reinvest back into the equity per your decision. The portion of a company’s profit that is paid to common and preferred shareholders is called a dividend.
Investing is the key to building wealth (at least one of them).
For those just getting started, a great strategy to keep your costs in check is to do a blend. In order to keep the fees down, you could open a brokerage account with Fidelity.com, buy ETFs only with free trades and have a few stocks under Computershare or Wells Fargo. The few investments under Computershare or Wells Fargo Investment can be purchased for $25-$100 per month in 1-4 different stocks. This could be an excellent investment strategy for getting started at a very reasonable cost.
If you already have over $3,000 you can invest, then Vanguard.com might be a better option. Their choices of ETFs are fantastic. They have multiple asset classes, sectors, and speciality ETFs, opening lots of options. Remember, you will need an initial starting amount to open an ETF brokerage account ($3,000), but they offer free trading on the ETFs that saves you money. I know $3,000 may be too high for some, but if it’s an option to invest, I view this is an excellent strategy to get started for low costs. Again, Fidelity offers the same type of service with their iShares options without the upfront costs requirement. If you don’t have that extra money, don’t worry about it, you can always add it on later when you are able to afford it or go with Fidelity.
Alex Richwagen is an investment research analyst. Any of his recommendations are that of Mr. Richwagen, the information presented by him is the opinion of his research. All investment decisions are your choice and should be based on your own analysis.