Why Do I Need a Broker?

If you want to buy stocks, you're going to need a broker. And who wouldn't want to own stocks? Over the past 100 years, your long-term savings would have fared better in the stock market than anywhere else -- not in bonds, not in real estate, not in gold, and certainly not in Beanie Babies.

But before you enter the first ticker symbol on your Fool Portfolio tracker; before you start tracking the Dow's every move; before you run the numbers on a company's cash flow, you should set some expectations.

Here's one good rule of thumb: If you've got money you won't need for five years or longer, you should invest it in the stock market. Money earmarked for use in less than five years (such as for a down payment on a house, or a graduating high school senior's college tuition) should be put in a short-term savings vehicle, like a money market account, savings account, or certificate of deposit (CD). And, heaven forfend, if you have high-interest credit card debt, send all your extra shekels directly to your lender and pay off that bill!

But your long-term money belongs in stocks. Why? It's simple: Historically, there is nowhere you could have gotten a higher rate of return than in the stock market. Even though the bear market of 2000-2002 put a damper on returns -- the S&P 500 returned only 6% annually over the 10 years ending in November 2007 -- the historical average annual S&P return since 1926 exceeds 10%. And while the market has performed quite well since those 2002 bottoms, that trend won't continue forever, and before you start investing, you should consider that.

Nevertheless, over the long term -- during bull markets, bear markets, depressions, recessions, and elections -- the stock market has been the place to be. And a discount brokerage account will get you there.


Read/Post Comments (69) | Recommend This Article (290)

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 December 23, 2008, at 4:26 PM, pollewogg wrote:

    I've yet to invest, but I've been late on other things, too.

  • Report this Comment On February 11, 2009, at 8:16 PM, chopper007 wrote:

    I need to actively, trade, I want to make it my job, at my sons school teenagers were given 100k trading demos, as part of thier business studies within two months nearly all of them had 125k plus in thier trading accounts, I have been playing with Forex demos and have made an average £7000 a week, I don't get why people find it so difficult but my problem is finding a good broker, any suggestions? I don't mean a cheap one I mean a good one with an excellent trading platform, please advise...

  • Report this Comment On February 14, 2009, at 9:34 AM, pokeitailego wrote:

    Hi Chopper. Same here. I feel like I could make a living investing but need start up help.

    pokeitailego@gmail.com

    If you get some good advice.

    Thanks,

    Lee

  • Report this Comment On March 20, 2009, at 1:04 PM, FX123 wrote:

    A good broker is hard to find in the forex trading world too. I tried about 3 others until I settled on FXDD www.fxdd.com their customer support and platforms are nice (metatrader and signals trading)

  • Report this Comment On December 12, 2009, at 7:08 PM, Cal916 wrote:

    Is stock trading easy to understand? I am just flustered on understanding it.

  • Report this Comment On January 14, 2010, at 2:11 AM, barnyboat wrote:

    Dear sirs,

    I am interested in investing in Scottrade but they require my social security number,etc, this I have no problem for tax reasons except I am British and live in the UK.

    Can you suggest an alternative investment broker suitable for me or what I need to do.

    Thanks.

  • Report this Comment On January 20, 2010, at 11:22 PM, frperez1980 wrote:

    Hi,

    I've been trading for a short while with ING's sharebuilder. I strongly recommend NOT using this broker. I really feel I am playing the patsy when I deal with this service. Every stock purchase I have made happens to get excecuted when the stock price reaches the peak for that day. I haven't tried selling any stock through them but I am very certain that they will sell my stock or buy it from me at a conveniently low price. I'm buying high and (probably) selling low. I even tried to do a real time trade to avoid this high price business but they didn't execute my "real time trade" for several hours (at least 3 hours). So I stopped watching the stock price and went to work. When I got back they had excecuted my trade at a much higher price than when I intended to buy. Maybe I'm just a tool for their choice investors to be able to buy low and sell high. Or maybe their brokers are making a little money off of our unscrupulousness. Either way I'm not happy doing business with them.

    Does anyone reading this use a different broker? If so, have you kept an eye on the stock prices you are getting vs. the prices you are trying to get. I'm looking for recommendations for other brokers.

  • Report this Comment On January 27, 2010, at 7:55 PM, fringefan wrote:

    I use etrade and have no complaints. Trading platforms are more for guys trying to day trade which I am not and I can tell you investing your money is different than fake money because most freak when they get into the red. I was up 169% last year and now I make this a career for a firm. Do your homework and invest smart because I have had so so results trying to day trade. I pick the right stocks but as usual the timming is what gets me. Funny when you do it for a living because you are limited on what you can do because of compliance issues and the liability aspect.

  • Report this Comment On January 27, 2010, at 8:37 PM, stan8331 wrote:

    I use Interactive Brokers and have no major complaints. Their interface is clunky, but I can live with it. Trades are incredibly cheap - $1 each with a minimum of $10 in trading fees per month. Large accounts will pay more than $1 total per trade, but the percentage of equity will be even lower than for the small accounts.

    If you're a long-term investor you do have to exercise some caution - it's necessary to exercise some restraint and not allow the low cost structure to get you caught up in more of a trading mentality. But I really love the fact that I'm not pushed into making big bets in my still relatively small Roth IRA in order to keep the trading cost down as a percentage of equity. I can add 10 shares of ATVI and pay about the same percentage in trading cost that would have required me to buy 70 shares on Scottrade (which is a fine broker, apart from the fee advantage offered by IB).

    I think IB offers a great value for anyone who actively manages their portfolio by buying for the long-term in small increments - not only day-traders. The low fee structure also makes it easy to slice a little profit off the top of a position that might be slightly overheated, so as to increase cash or allocate to a more undervalued stock.

  • Report this Comment On March 04, 2010, at 2:13 PM, tradetoday wrote:

    There are many great online brokers to use, and they are all competively priced. Some are geared more towards active trading (Scottrade or ETrade) while some lean more towards beginner investors (Schwab).

    Make sure you learn everything you can about trading stocks first, before you jump right in. Another great resource is tradingrite.com.

  • Report this Comment On March 21, 2010, at 2:07 PM, kadonkey wrote:

    You can buy stocks WITHOUT a broker, contrary to the first sentence in the Fools article. I have been doing it for years. Many companies offer DSPP's. You want to choose the plans that have the lowest costs. GOY

  • Report this Comment On March 25, 2010, at 11:22 AM, liffe123 wrote:

    I am an equity derivatives broker at MF global and we can provide futures and options and cfd accounts either phone broked or via your own electronic platform. If you think this may interest you then contact me at sevans@mfglobal.com

  • Report this Comment On March 31, 2010, at 1:49 PM, TMFBritcodeftw wrote:

    Quite happy with Scottrade - my only complaint would be they need to update their website since it's quite clunky and doesn't work well in browsers like Firefox/Safari/Chrome. Bit behind the times.

  • Report this Comment On April 13, 2010, at 7:12 PM, LostInJungle wrote:

    Interesting that the Fool article's comments on investment returns ends with 2007, right at the beginning of the Great Recession.

    I wonder what the return would look like after factoring in the big dive that Wall Street took 2007 - 2009.

    I bet it wouldn't look too pretty.

  • Report this Comment On May 16, 2010, at 6:52 AM, nici1706 wrote:

    from nici1706 I am a belgian citizin and living in belgium . I have not a security number and it is not for tax . How to proceed and what broker you can recommend ?

  • Report this Comment On July 21, 2010, at 3:20 PM, pedrocruz1 wrote:

    This article does not answers the question that is also its title...

  • Report this Comment On July 21, 2010, at 3:26 PM, WallstreetKnight wrote:

    Beanie babies haven't been around for 100 years.

  • Report this Comment On August 23, 2010, at 11:17 PM, aswjr wrote:

    Has anyone had experience with Fidelity?

  • Report this Comment On August 28, 2010, at 9:09 AM, kenval24 wrote:

    I WANT TO KNOW HOW I CAN SALE MY STOCKS AND HAVE MY MONEY PAY TO MY BANK ACCOUNT .?? ANYONE CAN HELP ME WITH ANSWER??

  • Report this Comment On November 19, 2010, at 1:43 PM, nafeponline wrote:

    Great post the stock market can definitely turn huge profit out and sounds a lot scarier than it really is. Sure their is risk but finding someone to watch your stock can help to eliminate that risk. I haven't heard of many people I know talking about Fidelity, I know people that Like E-trade. I think it's up to your standards on pricing and looking at their customer service record. With all the apps you can get on your computer and phones now a days too it makes it a lot easier to keep up with certain stocks and markets.

    http://nafep.com

  • Report this Comment On February 25, 2011, at 12:46 PM, doug10399 wrote:

    I agree that you never answer your question (Why do I need a broker?), and one poster replies: You don't. What gives? -- Doug M

  • Report this Comment On February 27, 2011, at 7:10 PM, e805 wrote:

    one absolutely Does Not need a broker. hasn't anyone heard of vanguard? a trade is usually $7.00 and it is done in real time. if you buy/sell vanguard funds, the fee is ZERO.

    i have been doing my own trading and am just a regular joe, learning on the job. before i buy or sell, i read thru several online and print publications to judge if the time is right for that particular fund to be added or disposed of. and the expenses for owning vanguard funds is minuscule compared to any of the others. it does add up, over time, to your advantage. bottom line, broker not needed.

  • Report this Comment On March 01, 2011, at 8:35 PM, alwena wrote:

    Is a bond manager a good idea? That is, is a bond manager worth a 1/2% of the value of my portfolio per year? (There doesn't seem to be another avenue on this site for this question.)

  • Report this Comment On April 19, 2011, at 8:50 AM, sharetips033 wrote:

    Some banks do have brokerage firms who sell stocks. But under the law you have to use a registered broker to buy and sell securities as third party, so you have to use a brokerage firm of some kind.

    E-Trade, Charles Schwab, Scottrade and lots of other discount brokers are out there that you can use with a relatively small degree of effort. The only trick will be getting your stock TO them to sell. I am guessing it’s either in some sort of an account somewhere or in stock certificates. Sometimes it can be tricky getting the stock actually moved to the broker to get it sold, but if you can get some good service through one of the firms, it shouldn’t be too painful. The discount brokers will also charge less in commissions to sell the stock for you.

    Now the REAL question is, what are you gonna do with the money when you sell it…?

    http://commodity-tips-mcx.blogspot.com/2011/03/shyamadvisory... || http://commodity-tips-mcx.blogspot.com/

  • Report this Comment On April 19, 2011, at 5:17 PM, Jazzyluvchild wrote:

    I am totally new to investing, frustrated with mutual funds and my brokerage acct. no affording real returns. I just came to the site and feel, I need to read the motley fool books prior to investing. The 3 stock recommendation of Google, Akami and Rackspace sound intresting and I have read some of the related articles on Cloud Computing however, it sounds logical I just don't fully understand all the computer terminology. I only have a few thousand dollars to begin. So it sounds like I need to read the Motley fool book first?

  • Report this Comment On May 10, 2011, at 7:48 PM, thinking123 wrote:

    I have been using Schwab as my primary broker, having consolidated past trading activity from some of their major competitors. While Schwab may not be the lowest broker on a per trade price ( I pay $8.95 per trade as an active trader), I find that their trading platforms, Streetsmart Pro and the new Streetsmart Edge are incredible tools. The ability to pull up historical data, link into the vast Schwab research resources, and be assured of very timely executions is worth the extra dollars for me.

    And, I stand to be corrected, but to my knowledge, Schwab is the only broker who offers 7 x 24 live telephone support, either from a very knowledgeable trader, or an account manager... I know, as I have called them a number of times in the early hours of the morning in setting up trades and to do a sanity check.

    Also, for a beginning trader, Schwab has a great set of online courses and guidebooks that you can download for free, which would cost a fortune, if you took some of these "be a millionaire classes" promoted to prospective investors.

  • Report this Comment On May 26, 2011, at 9:38 AM, archiemti wrote:

    I have used TD Ameritrade for the last three years and have been very pleased with the service. They charge 9.95 each trade and the response time is great.

  • Report this Comment On June 10, 2011, at 6:33 AM, mcxtipstrial wrote:

    Some banks do have brokerage firms who sell stocks. But under the law you have to use a registered broker to buy and sell securities as third party, so you have to use a brokerage firm of some kind.

    E-Trade, Charles Schwab, Scottrade and lots of other discount brokers are out there that you can use with a relatively small degree of effort. The only trick will be getting your stock TO them to sell. I am guessing it’s either in some sort of an account somewhere or in stock certificates. Sometimes it can be tricky getting the stock actually moved to the broker to get it sold, but if you can get some good service through one of the firms, it shouldn’t be too painful. The discount brokers will also charge less in commissions to sell the stock for you.

    Now the REAL question is, what are you gonna do with the money when you sell it…?

    Regards,

    http://sonictrades.com/mcx-tips-free-trial/ $$ http://sonictrades.com/commodity-tips/

  • Report this Comment On September 13, 2011, at 6:51 AM, purnamagum wrote:

    nice explanation

  • Report this Comment On October 11, 2011, at 12:22 PM, share2wish wrote:

    For Best Commodity Tips Gold Silver Updates and Live commodity Gold Silver Tips -

    http://commodity-mcx-tips.blogspot.com

  • Report this Comment On October 11, 2011, at 12:22 PM, share2wish wrote:
  • Report this Comment On October 31, 2011, at 1:45 PM, DaveFromNaples wrote:

    How do I transfer stock and bonds currently invested with Morgan Stanley, to an electronic brokerage company like E-Trade or Scottrade, so that I can avoid the expense to sell them at MSDWR before doing a transfer to set up my new account? And which of the two companies mentioned above would you recommend for my trading if I join the Motley Fool Million Dollar Portfolio tomorrow, November 1st. Thanks.

  • Report this Comment On November 14, 2011, at 5:56 PM, ThisIsUs wrote:

    Please forgive me, but I am new at this thing...can anybody recommend a broker... i need to invest 10k before the wife and daughter get their hands on it......

  • Report this Comment On December 24, 2011, at 1:42 PM, johng49 wrote:

    I HAVE YET TO INVEST ALTHO i HAVE A SUM OF MONEY SITTING IN BANKS DOING NOTHING .iWOULD LOVE TO TAKE A CLASS TO LEARN THIS .dOES ANY ONE OF A CLASS OR COURSE TO TAKE JOHN

  • Report this Comment On January 05, 2012, at 4:54 PM, cwayne22 wrote:

    Does anyone do forex trading? I am really interested but am a little uneasy about it! I want to watch a web demo but do not know where to look. Let me know of any advice you may have. Thanks!

  • Report this Comment On March 07, 2012, at 4:38 AM, KeenTrader wrote:

    cwayne22, with regards to forex trading, you wont go too far wrong looking around www.fxcm.com.

    They are by far the worlds largest retail forex broker, have something like 380,000 live private retail accounts and are regulated in something like 12 countries.

    They also have fantastic free resources to learn, follow market commentary and understand how to use their software.

    I have used them with good sized personal accounts and there are many institutions that use their liquidity for large accounts too.

  • Report this Comment On March 07, 2012, at 6:12 PM, sheltonclan wrote:

    Okay - here is some advice for those who think they can make a living at this. I suggest opening an account with Options Express. They have a "trial run" system, where you basically can trade with monopoly money for a while.

    Trust me. It looks easier than it is, to make money at this short term! I found the Options Express practice platform to be very beneficial and instructive on many levels. It's free - give it a whirl.

  • Report this Comment On March 23, 2012, at 12:14 PM, ginnykjones wrote:

    The article doesn't explain why you need a broker. I have a couple of stocks through a direct buy from my Electric company, Duke, and one from a stock buying club.

  • Report this Comment On March 28, 2012, at 5:50 PM, LuccaF wrote:

    Hello

    Your service is very good, I'm new at this I still can't find options to invest online. What can I do to start investing?

    Regards

    LuccaF

  • Report this Comment On May 05, 2012, at 5:18 PM, YeahYeah64 wrote:

    Don't just go with ANY broker. Go with a DEEP DISCOUNT broker for $10 a trade. Also unmanaged index funds (such as ETF's) outperform managed funds.... True fact that's been statistically proven in all kinds of studies.

  • Report this Comment On July 28, 2012, at 11:55 AM, xxbrainxx wrote:

    I see alot of questions be asked here but few answers. There is probably a better place to get faster answers?..........ANYBODY

  • Report this Comment On October 12, 2012, at 10:44 AM, juhghgh wrote:

    if you need a broker just call mancabelli

  • Report this Comment On October 12, 2012, at 12:01 PM, yhjtyjghjthgfh wrote:

    Mancabelli knows everything about brokers. He left early to get a haircut though. the dome stinks.

  • Report this Comment On October 12, 2012, at 12:02 PM, yhjtyjghjthgfh wrote:

    Mancabelli for top broker

  • Report this Comment On December 18, 2012, at 5:28 AM, Rakeshkumargarg wrote:

    Thank God, i found the best broker whose brokerage charges are very less. Also i found a good advisory from where i get the best commodity calls.

    http://www.profit.biz/

  • Report this Comment On April 04, 2013, at 6:32 PM, roscons wrote:

    sorry but you did not answer the question, why do I need a broker, can I purchase stocks directly from companies?

    Pete

  • Report this Comment On May 03, 2013, at 4:32 AM, banmate7 wrote:

    You do not need a broker to trade stocks. I have been an investor since 1990 and have never had one. I do my own research, utilizing Motley Fool, Yahoo Finance, Seeking Alpha, Fortune, Forbes, Money, and Kiplingers.

    Occasionally I read a book, like "High Powered Investing for Dummies". I am an adherent of Benjamin Graham and Warren Buffett value investing. I basically invest in 3 ways:

    1) Individual stocks, driven by value investing.

    2) Dollar cost averaging into low cost index funds when I have no other choice (like with company 401k plans).

    3) Bond funds

    Again, I never have needed a broker. I have done exceptionally well nevertheless. I save. I invest in North American blue chips at value. I reinvest dividends. I basically hold forever, unless valuations become absurd, whereupon I sell & find new value.

    It takes years, but I handily have beaten indices using value investing. I do not engage in short term trading, be it stocks or derivatives. Do the research, as you will learn very few people make money this way. You are more likely to make a big mistake and lose most of your money...especially in attempting to learn, in competing against market makers who have much better tools.

    Few people make a living by trading. As I said, the most efficient and safest way to make money is long term value investing. Anybody trying to tell you otherwise probably wants to sell you their services...especially brokers.

    It really disturbs me that some folks here are inquiring about forex trading or short term options trading...and are being encouraged. The average person should never get into such losing propositions. Trust me, pick up the Dummies book and focus on the value investing chapter. It might change your outlook...and investing life.

  • Report this Comment On June 30, 2013, at 9:56 PM, FiatDebtHolder wrote:

    Using one electronic broker is Foolish! The last time our market was behaving like this (ancient 1970's/80's) banks failed.

    Remember Greece recently?

    Despite the claims of "insured", "AAA ratings", and all the rest, there will be failures. There will not be bailouts for the likes of us. There probably will be "bail in's" where your account get's to donate a double digit percent.

    Diversify includes breakage / trading firms.

    There is just too much debt for this to turn out OK.

  • Report this Comment On July 12, 2013, at 7:20 AM, machyoung wrote:

    Can anybody provide an opinion of Wells Fargo Advisors? I am new to investing, have WF accounts (both personal and business), and seem to like the idea of keeping my accounts all in one place. Ideas or opinions?

  • Report this Comment On July 27, 2013, at 7:04 AM, Chrisk51 wrote:

    You don't know me. I've never posted before. I've done a lot of stupid things. Made bad choices. Lots of mistakes. As it turns out looking back. The best thing I did. Was set up an automatic. Deposit from my bank account to. Send money directly into a few mutual funds. Just left it alone putting in a little every month over time. Has added up to. Way more. Than all the times I have tried every new idea. The problem with my picking stocks has been. 1. being in too much of a hurry. To buy instead of waiting for a dip. 2. Selling the winners too soon. That's what I would like to tell the new people.

  • Report this Comment On September 09, 2013, at 5:49 PM, melfizz wrote:

    In the section of "Why do I need a broker, you didn't really answer the question of why. You actually kept saying that we need a broker under any type of market, but you didn't explain why.

  • Report this Comment On September 22, 2013, at 2:23 PM, bumbojas wrote:

    This does not answer the question " Why do I need a broker?" . It is simply a case for investing in stocks rather than other forms of investment. Surely the main reason you need a broker is simply that unless you are licensed to trade on the Stock Exchange you are not allowed to buy/sell shares yourself directly!

    Bumbojas

  • Report this Comment On November 17, 2013, at 8:57 PM, melfizz wrote:

    Does anyone know if it's legal to invest monies saved from Social Security Disability checks?

  • Report this Comment On December 08, 2013, at 11:15 PM, carlos1g wrote:

    can anyone give any good comments about mbtrading? I am about to use them.

  • Report this Comment On January 04, 2014, at 8:02 PM, foolid wrote:

    I'm new here milfizz. But, what monies u have saved is all ur own. does any one soul know where ur (savings) moni came from???? Hope u got that, hmm?

  • Report this Comment On January 11, 2014, at 7:17 PM, daffee wrote:

    Has anybody use "SOGO" Trade?

    '

  • Report this Comment On March 03, 2014, at 11:28 AM, mrandmrsgroom wrote:

    My husband and I are new to buying stocks. We are trying to decide which broker to go with? Any advice?

  • Report this Comment On May 06, 2014, at 2:29 AM, mitch666 wrote:

    Its frightening how much in=gnorance there is

    in these postings. Open a Vanguard acct and listen

    to the agent buy

    and hold forever, Don't day trade

    dollar cost average into vanguard mutual funds,

  • Report this Comment On June 19, 2014, at 7:50 AM, Serg12 wrote:

    the company has just entered the market! Marijuana is a promising business! I would say it was a bomb!

  • Report this Comment On August 22, 2014, at 4:56 AM, flatfootsam wrote:

    well it's all clear as mud now, thanks for clearing that up, goodjob

  • Report this Comment On August 28, 2014, at 2:36 PM, FUTURENOW wrote:

    banmate7, most logical and sound advice.

  • Report this Comment On August 30, 2014, at 12:29 PM, GREENEURO wrote:

    i live in euro land need advice... on which broker to go for....

    what is tax position if i buy on line with American

    broker ... where would i pay taxes on profits, if

    any?

    any advice on what NOT to do .... so as to

    keep as much profit as possible.....

    looking forward to interesting replies....

  • Report this Comment On September 01, 2014, at 8:08 PM, JohnnyP wrote:

    I am also new to the stock market, and looking for a stock broker? Here is my question, I just want to pick some stocks,and leave them for 5 plus years, should I go to Charles Schwab, or vanguard?

  • Report this Comment On September 01, 2014, at 8:29 PM, JohnnyP wrote:

    Thank you banmate7 for that information, just what I was looking for, and good luck in the future stock buying.

  • Report this Comment On September 18, 2014, at 1:51 PM, FoolMEonce1 wrote:

    I am new to stocks, and am looking for a broker. As a retiree I am using limited funds. Can you assist me on getting started, etc?

  • Report this Comment On September 29, 2014, at 6:23 AM, JamesF94 wrote:

    Does anyone know a reputable broker around the Minneapolis area?

  • Report this Comment On October 04, 2014, at 7:51 AM, DrEL wrote:

    I am a Malaysian and quite new in this game. Can any one recommend me a broker?

  • Report this Comment On October 22, 2014, at 6:44 AM, BeTheBest1 wrote:

    I live in London can somebody recommend a broker please?

  • Report this Comment On December 16, 2014, at 6:36 AM, emmadrew88 wrote:

    Can you see the brilliance behind this article http://www.crainsnewyork.com/article/20121009/REAL_ESTATE/12.... I mean, yes, David Lichtenstein loaned some money from CIBC, but ultimately he is gonna achieve his goals which are gonna bring higher returns...

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