One of the things you need to do when you decide to invest is to choose a broker. There are two types of brokerage companies you can choose from: full service or a discount broker. Let’s go over the two types.
1. Full service broker – If you go with this option, you’ll be assigned one person called a broker to help you with your purchases. This person can deal in stocks, bonds and other investments. They will make recommendations to you based on your risk aversion and other information that you provide. They will also send you reports as needed, and do a lot of other personal things. In exchange for this personal, one-on-one service, you’ll pay a higher commission and typically need a higher amount to start investing.
2. Discount brokerage – This is for people who want to do it themselves. However, you have available all the research and just direct the brokerage firm to invest as you want. They do not give advice, and just execute the deals you want to make. Most of the trading will take place online, and you’ll simply sign into your account and do the trades yourself electronically. This is a lot less expensive but requires that you pay more attention to your accounts and do more research on your own – which is not a bad thing.
Do It Yourself versus Hiring a Broker
If you are working with limited funds, your best bet is to go for the do-it-yourself model. But, if you have more money to spend and not enough time to research, a full service brokerage might be for you. However, if you plan to just buy bonds and mutual funds you can do it yourself very easily. You just have to choose the right company to work with.
If you are going to use a full service broker, you will need to study the reputation of the broker to determine if the person and the company is right for you. You need to read all the fine print and be ready to spend from $2,000 to $10,000 up front to get started. If you use a discount brokerage you may be able to start with just $500, and for some types of investments it might be even less to get started. It depends on what firm you choose to work with, what your goals are, and some other factors.
So, first determine if you want a full service broker or a discount brokerage firm, then compare what is available.
Researching Brokerage Firms
Here are some questions to ask as you do your research to find the right broker for you.
* Minimum opening balance – How much are you required to deposit into the account to get started? This is important because if that brokerage account requires $10,000 to get started and you don’t have that amount, you can cross it off the list.
* Commission – How much money do they charge for each trade? Is it a set fee or a percentage?
* Research available – How much research do they offer so that you can make good choices for your investments?
* Education – Many discount brokerages also offer online education to help you understand the investments you plan to take advantage of.
* Services – Do they offer analysis of your accounts with projections, reports and other information to help you make good choices?
* Investment tools – Do they promise to make your investment quickly; do they offer credit cards that enable you to use your balance? Can you make investments online, via mobile devices and so forth?
Doing a full assessment of the different benefits to each brokerage firm is important. It’s a good way to narrow them down so you can make a good choice as to which firm you prefer to use. Most of all, having some idea of what they offer compared to what you want will keep you from spending more than you have to.