Best online broker for newbie investor w/ modest funds?
November 18, 2009 9:41 AM   Subscribe

I'm trying to choose an online broker. Fees vs. site functionality and features are my main concern. (1) What is the best online broker for someone who has between 5 to 10K to invest? (2) Is there any advantage to paying higher per-trade or per-contract fees for use of a site that has better features, or can all of the common features be found elsewhere easily? (3) Which discount broker has the best site functionality?

I'm afraid of signing up for a discount broker with a site I'll hate later because it doesn't offer enough, and I'm also worried about paying too much for awesome tools I won't really need. With less than 10K at my disposal, fees could easily eat up my profits.

I'll be dabbling in trades and options, so the ideal brokerage would have low-to-moderate fees on both. Bulk pricing discounts probably won't be too relevant at the volumes at which I'll be trading.

I know sites like MSN Money have free tools available, although I'd rather have them at hand on my broker's site. I've also read that some of the best tools are on pay sites, though this may be hype. How do tools from discount brokers such as TradeKing, TradeMonster, and OptionsHouse stack up to the tools from higher-priced brokers such as Fidelity, Ameritrade, and Schwab, and how do they both stack up next to free and pay tools from other sites?

I'd appreciate tales of personal experiences with these sites, or with any others that I haven't mentioned. Are you happy with your broker? Were you ever unhappy enough that you switched to another? Also, do some pay site subscriptions offer a significant-enough advantage to be worth the cost, or are they a ripoff, or only useful for the experienced investor? I'm going to be taking a class from Investools this week, but I don't know if I'll end up paying for the subscription or not. Thanks!
posted by mintyfresh to Work & Money (7 answers total) 4 users marked this as a favorite
I use Scottrade. They have a local branch which I find invaluable. $7 a trade for stocks.
I don't use much of their other tools, but they have plenty of research tools available.
I have both my Roth IRA and regular IRA there for several years and I link the results into Mint.
posted by wrnealis at 10:28 AM on November 18, 2009

I have used sharebuilder and Sharebuilder is the cheapest I've seen and foliofn has the best funds. I'm sure it depends on your goals. I am not a professional by any means but I have been told for the private investor to put your money in an index fund and let it ride is the best strategy. I find this hard to do because I have very little willpower.
posted by govtrust at 10:32 AM on November 18, 2009

Shameless plug, but my brother created a site to compare various brokers here. On it, he also has a chart set up listing the various fees of various brokers.
posted by jangie at 10:37 AM on November 18, 2009

I've used TradeKing and I'm happy with them. They have no fees on their IRA accounts, and the trades are cheap. They also have a lot of options-oriented tools, but since I don't trade options I don't know if they are any good or not. Their interface for making trades is pretty slick and the quotes are good enough for my needs. I'm not a believer in technical analysis and don't believe in timing the market, so most of my investment research is done on the 'net rather than with any kind of broker trading tools.

With less than 10K at my disposal, fees could easily eat up my profits.

I agree with this and strongly suggest not going through with this plan for this reason. Every trade you do, you're going to lose money on commissions, and as an individual investor you're probably going to lose a few cents per share on the spread. That might not seem like a lot of money, but if you pay $5 to buy $1000 worth of stock, and then pay $5 again to sell it, you've got a guaranteed loss of 1%. An 8% gain in a year is considered significant, so cutting into that by 1% is a big deal. Plus if you are talking about a taxable account here, you have to factor in taxes (taxed at your normal income tax rate rather than the capital gains rate if you hold for less than a year) which will further eat into your bottom line.

And on top of all that, options can be a lot riskier than simple investing (it's rare to lose 100% of your investment if you just buy stocks, but you can go broke fairly easily if you make poor decisions when trading options). It's boring, but I think that investing in index funds and trying to make as few trades as possible is always going to beat any kind of trading strategy for an individual investor with that amount of money invested. If you just want to play the market for fun, you shouldn't invest any more than you would gamble in Vegas, because it's a losing game for the same sorts of reasons (the House always makes money, whether you win or lose), and the systems and tools out their for individual investors aren't any more effective than systems for beating roulette.
posted by burnmp3s at 10:59 AM on November 18, 2009

The cheapest broker is not to have one. If you are going to be dabbling in stocks and options, the broker fees are the least of your concerns. You are going to lose money. You would be better off putting your money in low fee index mutual funds. It may not seem like as much fun, but are you more interested in entertainment or real investing?

If you have not maxed out your 401(k) and your IRA and your emergency cash, you should not be investing in a taxable account at all. Taxes will cost you much more than broker fees.
posted by JackFlash at 11:48 AM on November 18, 2009

I agree with the earlier posters on urging caution and looking into 401(k), IRA, and similar arrangements before spending money on taxable investments (or the local equivalent if you're not in the US; I am, so keep that in mind if you aren't).

That said, I have an IRA through Fidelity and have been very, very pleased with their service. I just opened a 401(k) through ING, and while I don't have enough experience with their investment products to say anything about them, I've had an ING Direct account for nearly a decade, and I've been happy with them as well. (That "emergency cash" JackFlash mentioned? That's where mine is.)
posted by tellumo at 12:36 PM on November 18, 2009

Another INGDirect/Sharebuilder happy customer. I like being able to do automatic transfers and see my brokerage account with the same login as ING, and the trades are not too expensive - $4 each. Also, Sharebuilder has started offering access to a lot of the most prominent mutual/index funds (Vanguard etc). They also offer Roth and traditional IRAs.
posted by media_itoku at 9:31 PM on November 18, 2009

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