Who is the best "buy and hold" online brokerage (and what should I buy)?
March 13, 2013 9:19 AM   Subscribe

My wife and I are going to dip our toes in the stock market. For the foreseeable future, I see us doing nothing other than buying (hopefully) reliable dividend-paying stock and holding it for the long- long-term (like 30 years or more potentially). We won't be doing options or even active trading other than occasional additional purchases. Who of the cheap online brokerages should we use?

(I know this question has been asked before, but the latest I could find was 2009. Anticipating the "buy index funds instead" advice, we already max out our 401(k) and aggressively save money/pay down our mortgage debt.)

There are many options out there for buying the stock, but I think I've narrowed it to TD Ameritrade, ETrade, Schwab, and Scottrade. I am leaning toward Scottrade if for no other reason than it is headquartered in my hometown and there's a branch nearby in case I need to see a person.

So: (1) what online brokerage is best for "buy and hold/dividend-paying" stock ownership, and (2) do you have a pet dividend stock that you like?
posted by AgentRocket to Work & Money (14 answers total) 9 users marked this as a favorite
Best answer: I use Scottrade. It's $7 per trade and I believe that's the cheapest you can get for a brokerage.
Are you interested in picking individual dividend stocks, or buying a fund? Take a look at "Aristocrats"-type funds like SDY (SPDR S&P Dividend ETF) - it's an ETF that "seeks to closely match the returns and characteristics of the S&P High Yield Dividend Aristocrats Index". The Aristocrats index, in turn, "measures the performance S&P 500 companies that have increased dividends every year for the last 25 consecutive years." It tends to perform better than the S&P in downturns and over certain time periods (though not always). It's only paying about 3% these days though.
I also like to read Seeking Alpha for investing ideas but you have to take it with a grain of salt.

I just bought a portfolio of high dividend yielding stocks. My the average of all my stock's dividends is about 7.8% pa. Look at some of the REITs and limited partnerships for some super high dividend payers (MMLP at 15% dividends, woot!). For more conventional companies, you've got the old standbys like tobacco companies and utilities, and other things like mature, cash rich tech companies (Microsoft 3.3% and Garmin 5.3%). Hell, after its recent slide even Apple is paying about 2.5% - I just bought a few shares of it last week.

Remember though, you don't get reward without risk. A lot of people think dividend stocks are a pretty crowded trade these days, but then, so is anything with a decent yield.

That being said, the individual stocks at Scottrade are my "fun" portfolio. For the bulk of my investments, I put them in Vanguard funds. My strategy right now is that I'm exchanging from a bond fund to a few equity funds at twice-monthly increments over the next year, to get in some dollar-cost averaging on equities (Remember the Dow is at an all time high right now- don't put all your money in at once). Everyone knows fixed income is going to tank at some point and by the time they do I'll be mostly in equities. I'm investing as broadly as possible, in the "all world" fund (global) and the "all stock fund" (covers 99.5% of the US stock market). No subscription, exchange or redemption fees, TER of around 20 bps, you gotta love Vanguard!

This is not investment advice. Have fun!
posted by banishedimmortal at 9:37 AM on March 13, 2013 [1 favorite]

By the way, I don't quite understand your comment "Anticipating the "buy index funds instead" advice, we already max out our 401(k) and aggressively save money/pay down our mortgage debt." The 401(k) is just a tax-advantaged account, you don't need to invest it in index funds - you could put the whole thing in one stock if you wanted.

Index funds definitely have a place outside of 401ks/IRAs. The advantage of index funds include:
1) low cost, both compared to actively managed funds, which charge higher management fees, and to trying to assemble your own portfolio, which will cost you brokerage fees and higher bid-ask spreads
2) diversified (on average the more diversified a portfolio, the better the risk/reward tradeoff and
3) low-maintenance, i.e. you don't need to constantly monitor the news and make decisions about what to add or remove from your portfolio - you can make more macro decisions like a yearly rebalancing of your assets.

Go ahead and do some stock picking if you enjoy it, but unless you have a lot of knowledge and want to put in a lot of time, I'd put the majority of your money in funds. TIIIA
posted by banishedimmortal at 9:59 AM on March 13, 2013 [1 favorite]

Best answer: I use Scottrade, but haven't tried any of the others. I chose them because the $7 trades were the cheapest at the time. The research tools are very good. It's a nice fast interface, that has all the info I need on the front page. They also have a few customization options I appreciate, good reporting and an office I can visit, even though I've only been there twice.

With Scottrade you can easily configure screeners to help you find good dividend paying stock. As an example I just selected the following 3 criteria in about 30 seconds:
- Dividend Yield - 4% - > 10%
- Componenet of Index - S&P500
- Number of Consecutive Quarters of non-Negative Earnings - 4 - >5

That produced a manageable list of 38 stocks that you could do further research on.

As banishedimmortal mentioned, you can buy index funds outside of your 401k through Scottrade - they have screeners for those too. The SPY he explained about is pretty much my 'pet dividend' investment.

I do own a broad variety of individual stocks, some for growth, which, if your retirement is a long way off or you plan to be retired a long time, you should consider. I treat these as my 'learning' portfolio. I don't have a huge amount of money in any one company, and I get and read the 10k's and other financial statements for lots of different types of companies this way.

Of the individual dividend paying stocks I own I particularly like AT&T (T), which generally pays a 4.5% to 6% dividend. Their competition, Verizon (VZ), pays a similar amount. I have a couple of others that pay a higher dividend, but consider them riskier.
posted by IanMorr at 10:03 AM on March 13, 2013

I've been with Schwab for close to 25 years. No complaints, never a problem. Excellent online and mobile tools. Not the cheapest but given you don't plan on active trading it doesn't really matter.
posted by cosmac at 10:06 AM on March 13, 2013

I use Scottrade. It's $7 per trade and I believe that's the cheapest you can get for a brokerage.
$7 is certainly not the cheapest.

It's $4.95/trade at TradeKing. (I'm there because they bought out Zecco or the other way around. No complaints, does what it says on the tin.)

It's even less at IB where it is $0.005 per share with a $1/order minimum; prices differ if you opt out of their flatrate system into their cost plus system. $10,000 minimum however. IB's interface is not very user friendly, but they offer an API so you can bring whatever interface you want. They get out of your way and charge you the least amount possible to execute the transaction, which is what some people are looking for.
posted by Brian Puccio at 10:24 AM on March 13, 2013

I have a few different brokerage accounts, including at two brokers that you mention specifically. Frankly, I don't see why it would matter, really. You're just buying and holding; the difference will be that you spend five bucks at one or seven bucks at another. For something that you plan to hold onto for thirty years.

That two bucks over the span of thirty years is basically irrelevant, even if you're buying a new stock every month or whatever. However, I don't think there's anything besides that two bucks that even theoretically matters. So you might as well go with the five buck broker instead of the seven buck broker, but who cares, really.

As for stock screeners and so forth, they've all got that, as do publicly available websites.
posted by Flunkie at 10:26 AM on March 13, 2013

Best answer: Anticipating the "buy index funds instead" advice

I'm not sure you have, given that the real reason for that advice is that hand-picking stocks is introducing an unnecessary risk into your approach, and one that's easy to mitigate by diversifying. If you're interested in rethinking the stock-picking approach, you might want to compare something like Vanguard Equity Income Fund, which is composed of the kind of investments you want, but protects you from individual stocks' volatility by being broadly diversified.
posted by RogerB at 10:47 AM on March 13, 2013

It's even less at IB where it is $0.005 per share with a $1/order minimum;

OK, but IB also requires that you generate $10/month in commissions or they charge you for it anyway. OP is going to be paying $120/yr just to keep the account open even if he doesn't trade. Scottrade doesn't have a required minimum so which one is "cheaper" depends on how much trading you're planning to do.

That two bucks over the span of thirty years is basically irrelevant,

Well, surely by "buy and hold" he doesn't mean that he's going to invest all his money today and never increase his investment (or rebalance) for the next 30 years. If he assembles his own portfolio of, lets say 25 stocks, invests more money periodically (quarterly), and rebalances annually, a $2 difference in trading would add up to several hundred bucks a year in trading fees. (In this scenario IB might be the better choice indeed)
posted by banishedimmortal at 10:49 AM on March 13, 2013

Best answer: Here is an online comparison of some of the online brokers. Things they are ranked on include fees and commissions, range of investment options, research and tools that are accessible to all clients, banking services, ease of website navigation and customer service.
posted by young sister beacon at 10:54 AM on March 13, 2013 [1 favorite]

If you want "reliable" dividends, I'd advise against buying individual stocks. Buy shares of a dividend mutual fund or ETF. Schwab lets you buy over 100 ETFs commission-free, including one domestic and two international dividend funds (SCHD, EDIV, DWX) if you want to focus on dividend-paying equities. This beats any brokerage where you have to pay a commission to buy stocks.

If you have at least $50K to invest (or a large mortgage), and still insist on investing in individual stocks, Wells Fargo offers 100 commission-free trades a year, on anything, per brokerage account if you have a Wells Fargo PMA account, which is free if you have $50K on deposit (10% of your mortgage also counts toward this bar). If you need more than 100 trades a year, you just open additional brokerage accounts.
posted by kindall at 11:02 AM on March 13, 2013

banishedimmortal, thanks for pointing that out, I forgot about the $10/mo minimum in fees. As you mention, it still may or may not be cheaper at IB. What you've said about investing quarterly and rebalancing annually (or other trading patterns) is spot on and is something OP will have to consider when it comes to fees.
posted by Brian Puccio at 2:01 PM on March 13, 2013

I also use TradeKing to buy individual stocks. That said, I consider buying individual stocks an "entertainment" exercise. I limit how much money I put in this account because I'm not great at choosing individual stocks!

The *real* bulk of my after-tax investment dollars are at Vanguard, where I invest in index funds (because I don't really trust myself to buy individual stock winners).

As an aside, I wonder if index funds and mutual funds are contributing to lax morals on corporate boards. Does having thousands of tiny random investors as shareholders reduce accountability? This hasn't kept me from using them though!
posted by sarah_pdx at 3:18 PM on March 13, 2013 [1 favorite]

TradeKing has worked out for me over the last six years for trading individual stocks and ETFs. Their fees are super-low, and I have always been pleased with the help I've received when I had questions. If you're going to trade less than once a year, you need to have at least $2500 in assets there to avoid inactivity fees.

From my experience, for somewhat higher fees Schwab is a slight upgrade in terms of customer service and is better if you're interested periodic mutual fund trading.

Regarding stocks, I recommend dabbling at first, to make sure you and your wife really have the stomach for buying and holding. You probably do, and it sure beats the absolutely crackheaded way most mutual funds are managed. But the last thing you want to do is learn with big bucks that you can't handle the wild ride.
posted by eelgrassman at 7:11 PM on March 13, 2013

Anticipating the "buy index funds instead" advice

What RogerB said. If you want to make money, go to Vanguard, decide what mix of stocks, bonds and short term investments meet your needs, and buy a mix of index funds. Then leave it alone.

A recent study showed that "more than 65 percent of the large-cap active managers lagged behind the S&P 500®, more than 81 percent of mid-cap funds were outperformed by the S&P MidCap 400® and over 77 percent of the small-cap funds were outperformed by the S&P SmallCap 600®." If the guys who are paid the big bucks can't beat the market, chances are you can't either.

Also read this book.

On the other hand, if you find buying individual stocks entertaining, Vanguard has a brokerage account that only costs $7 for the first 25 trades if you have less than $50K with them, and it gets cheaper the more you invest.
posted by overleaf at 9:04 PM on March 13, 2013

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