Ten Ways to Size
up a Broker
Ready to open a discount brokerage
account but not sure where to start? Wondering if you're getting the best
service for your money from your current discount broker? Either way,
here are 10 things that will help you size up a broker and choose the
best one for your needs.
Some brokerages market their research as a real plus. That's fine, but you probably don't want to pay for it. There's plenty of research available for free all over the Web (View Raising A Millionaire's Recommended Resources). Some of the offerings include analyst reports, real-time quotes, and detailed financial data.
7. Mutual funds
No-load mutual funds can be purchased directly from mutual fund companies, so unless you're a mutual fund trading addict, the availability of thousands of mutual funds in one location probably shouldn't affect which broker you choose. While you may purchase some no-load mutual funds from discount brokers without paying a transaction fee, some brokers do charge a fee for funds -- so be sure to check on this before making a purchase. Of course, if there's a particular mutual fund family that you're set on using, make sure that the brokerage you select offers that family of funds.
8. Investment product selection
All the brokerages offer stocks traded on the major exchanges, and most will offer equity mutual funds. But there are a number of other investment vehicles that you may wish to use. If you're somebody interested in risking your hard-earned money on over-the-counter (OTC) bulletin board stocks (This is not recommended!), you'll have to see which brokerages offer them. Other choices such as options, government bonds, corporate bonds, and the like are not available through every brokerage. Determine what you expect you'll need. Raising a Millionaire is a fan of just plain old stocks, especially if you're young and act accordingly.
9. Other methods of getting your trades executed
What if the Internet breaks? We'd all probably get a bit more exercise and sun now and then. Seriously, though, sometimes you may not have access to a computer. Check out whether the brokerages you're considering also have touch-tone phone trading, and how that works. Sometimes you just might want to place an order through a real, live person, and many discount brokerages offer that option, too.
10. Other freebies and perks
We wouldn't suggest making too big a deal about the freebies. After all, they are one-time things, and $100 or a 10 free trades probably isn't going to be worth the hassle if you soon find that you've made the wrong choice and have to move your account elsewhere. Still, free money is free money. So if you find yourself deadlocked on which brokerage to go with, cash (or some other perk) can be a persuasive tiebreaker.
Finally, remember this: If you're only making five, six, 10, even 20 trades in a year, the difference between paying $7 per trade and $20 per trade isn't significant. We think it's better to make customer service a priority and not sweat about most of the other stuff. After all, how much did you ever worry about which bank to open your first checking account with? The differences are about the same.
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