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The Key to Happier Investing

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Great investors don't succeed all by themselves. Even if you're the most independent, self-motivated investor you can be, you still need to have the best information and research resources, as well as access to the investments you want and flawless executions when you pull the trigger and invest.

Having the right partner on your side can make a huge difference. That's why it's so important to your investing success to choose a discount broker that understands the needs of independent investors and gives you everything you're looking for from a financial services company.

The best broker for your happiness
A recent survey from J.D. Power and Associates sought to discover exactly which discount brokers excel in working with self-directed investors who don't get assistance from financial advisors. The survey judged brokers on a range of factors, including customer service interaction, trading costs and other fees, availability of account information, investment offerings, research resources, and problem resolution.

The results of the survey included the following findings:

  • Vanguard and Schwab (NYSE: SCHW  ) landed in the top echelon of brokers, scoring perfect fives on J.D. Power's Power Circle rankings. The survey indicated that Vanguard scored particularly well on account offerings and information, while Schwab excelled at customer service interaction and investing resources.
  • Coming in third place was Scottrade, which had good performance in trading costs and fees. Also scoring 4 out of 5 were Fidelity, ING's (NYSE: ING  ) ShareBuilder, T. Rowe Price (Nasdaq: TROW  ) , and TD AMERITRADE (Nasdaq: AMTD  ) .
  • E*TRADE Financial (Nasdaq: ETFC  ) scored slightly below the industry average, with a rating of 3 out of 5.
  • Bringing up the bottom of the list were Bank of America's (NYSE: BAC  ) Merrill Edge brokerage and Wells Fargo (NYSE: WFC  ) , scoring just 2 out of 5 in the Power Circle rankings.

So based on these results, should you run out and open an account at Vanguard or Schwab? Should you close your Wells Fargo or Merrill account? The answer isn't quite that simple.

What you need
The problem with any broker survey is that it's only as good as its methodology. Just a few months ago, SmartMoney did a similar survey that put Fidelity, E*TRADE, and TD AMERITRADE on top, with Schwab and Scottrade in the No. 4 and No. 6 spots, respectively. Rankings like these are extremely subjective.

More importantly, your individual needs are never going to match up perfectly with the average survey-taker. With trading costs coming down throughout the industry, you'll no longer find the price disparities you used to see. So the prime differentiator becomes quality issues such as service, research, and execution. But you'll weigh each of those factors differently from other investors, so the perfect broker for you may not be the right one for someone else.

For instance, many brokers have incredibly sophisticated research tools. But if you have solid independent sources for financial information, then those research tools aren't necessary. Having 24-hour customer service is incredibly useful to some people, but if you don't plan on consulting with an in-house broker for advice on trades, then it's virtually worthless to you. Quality trade execution is vital for frequent traders, especially in light of the flash crash -- but if you only trade a few times a year, then saving a fraction of a penny per share on a trade isn't going to make or break you.

Get the right broker
With so many discount brokers to choose from, it's important to do your homework to pick the one that's right for you. But don't get caught up too much in rankings and surveys. Although they can provide a useful point of view, they only represent a general opinion based on investors who don't necessarily share your particular needs. The best way to make sure you have the perfect broker is to know what you want and find a broker you're comfortable with that will give it to you. That's the secret to happy investing.

Finding the right investments will make you a happier investor. Click here to get The Motley Fool's free report with 3 ETFs Set to Soar During the Recovery.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.

If you're in the market for a broker -- or just want to check out the competition -- make a visit to the Fool's Broker Center. You'll find a handy comparison table that will help make picking the best broker a piece of cake.

Fool contributor Dan Caplinger stays happy with a little help from his friends. He doesn't own shares of the companies mentioned in this article. Charles Schwab is a Motley Fool Stock Advisor recommendation. The Fool owns shares of T. Rowe Price. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy never worries and is always happy .

Read/Post Comments (5) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 18, 2010, at 4:44 PM, susan400 wrote:

    happier ?

    investing isn't about tryiung to be happy.

    Investing is about worth capital allocation.

    If you are trying to be happy, give up investing and do other things.

  • Report this Comment On October 18, 2010, at 5:49 PM, Samadd wrote:

    It would seem that all these brokers are only available to American investors. I would like to pay American trading rates of under 10 dollars rather than UK rates which work out at about 13 dollars a trade minimum. Does anyone know if this is possible?

  • Report this Comment On October 18, 2010, at 9:06 PM, xetn wrote:

    This article fails to mention, what many consider the premier discount broker: Interactive Brokers. They not only have the very lowest commissions, you can invest directly in foreign markets, using local currencies. (E-trade allows this to a limited degree).

    The biggest complaint I have with is a somewhat dismal experience with customer service.

  • Report this Comment On October 18, 2010, at 11:08 PM, aleax wrote:

    @xetn, being very P.O'ed with my current broker (Merrill Edge), I've recently been researching online brokers, and Interactive Brokers are indeed fascinating, especially for somebody (like me) interested in international markets (I'm not a US citizen, just a permanent resident, and may move away again, after all) -- btw, @Samadd, you should check them out, I believe they do serve UK residents (and many other countries) too. Eventually I decided their pricing, while low, was too complex and quirky, their multiple platforms and APIs quite challenging, &c -- great for a professional full-time broker, not so great for the individual investor with limited time. Right now I'm looking hard (and will probably try) Zecco, whose web-2.0-ish orientation matches my need well (being able to exchange secure emails and chats with customer service over the weekend is also a rare and pleasant part of a user's experience). Anybody's tried them?

    @susan400, if investing (the Fool way) doesn't make you happy, just be a saver instead: just save as much as you can, of course, and regularly, dollar-cost-averagingly buy a couple big index funds (bonds and stocks in some proportion) with automatic dividend reinvestment -- and spend your life doing things that DO make you happy: the few percents a year you MAY miss in returns (but might not!) are too high a price for spending a lot of time and energy in a pursuit that doesn't make you happy!

    For many of us, picking and financially supporting great companies (especially in specific fields we intensely believe in) IS happy-making, AS WELL AS money-making. And THIS, I strongly believe, is a short but reasonably faithful characterization of the Motley Fool's typical audience!

  • Report this Comment On November 13, 2010, at 2:48 PM, aleax wrote:

    Following up to my own post for completeness: after some weeks of experience, Zecco proved very disappointing, but I found reasonable satisfaction in OptionsHouse instead, so that's what I'm currently using -- I've posted about my broker choices experiences in detail on my blog at ...

    Motley Fool Alpha, a new service I've recently joined, strongly recommends Interactive Brokers (especially for their excellent support for stock shorting, which is part of Alpha's strategy -- it's kind of a long-short advisory equivalent of a hedge fund), and a lot of MG Alpha members appear to be switching to it, but... I gave it another good, hard look, and I STILL find myself baffled by the complex sign-up procedure and related choices, interface, AND pricing structure... OptionsHouse, from a few experiments, appears to be quite OK for shorting, too, so that's where I currently plan to stick around.

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