Fools with questions on finance -- or just about any other topic -- can often find prompt and helpful answers from the folks on our discussion boards. On our Investing Beginners discussion board, for example, many new posters present questions on a range of topics, from picking the best stocks and funds to choosing a good brokerage firm.
Here are some questions on picking the right broker for you, followed by our responses:
What should I look for when seeking a discount broker?
As we point out in our broker collection, there are a lot of factors you can consider, but the most important ones will vary from person to person. For example, if you have no interest in mutual funds, you won't care about fund-related charges at the brokerage. If you prefer going to a bricks-and-mortar building to deal with your portfolio, you'll want a brokerage with local branches, not an online-only enterprise.
We recommend making a list of what you value most in a brokerage, and comparing contenders on those counts. Think about which services you'd use the most, and see what they cost. (Our broker comparison table can help you see how you might construct your own comparison.)
Can a broker that invests in mutual funds invest in any fund family?
First, for those who don't know, a "fund family" is a company -- such as Fidelity, Vanguard, or a host of others -- that offers several or many mutual funds. The answer here is no. We don't think there's any brokerage that offers funds from every single fund family out there. Many brokers, including Scottrade, TD AMERITRADE (Nasdaq: AMTD ) , and E*TRADE Financial (Nasdaq: ETFC ) , offer hundreds of funds without any fees.
But don't let the absence of a fund you're interested in be a dealbreaker for you, if you find an otherwise terrific brokerage. You can usually just buy into the fund from the fund company itself. (It might take a little longer, since you'll have to get necessary forms and send money.)
How do you figure out the entire cost of a trade? Ones I have seen say as low as $8-$10, but they also say you need to make 120 trades a year. What if you don't have 120 trades a year?
Many brokerages' trading commissions apply no matter how many trades you execute during the year. Others offer lower rates if you make more trades, and slightly higher ones if you only trade infrequently.
Full-service brokers used to charge commissions based on the amount you invested. That means you'd pay a higher commission to buy 100 shares of a high-priced stock like MasterCard (NYSE: MA ) or Apple (Nasdaq: AAPL ) than you would for stocks with lower share prices, such as Citigroup (NYSE: C ) or Yahoo! (Nasdaq: YHOO ) . Now, though, you typically pay the same price regardless of how much the shares cost.
In some senses, then, the cost of the trade is the $4 or $10 or $25 that you spend to buy your stock. But it's also good to try to keep that amount to 2% or less than the value of the investment. If you're buying $500 of stock, a $25 commission would amount to 5% of its overall value, a big bite. Invest $1,500, and the percentage of that $25 cost shrinks to 1.7%. With a $10 commission and a $500 investment, you're paying just 2%.
For more on broker-related issues, check out:
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