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Great Commercial. Good Broker?

Lately, discount brokerage companies are pitching their softer side in commercials. I'm really happy that brokers are being asked to their clients' daughters' weddings. And that's cool that Charles Schwab is dropping the formality, inviting investors to call him Chuck.

But when it comes to deciding who handles my trades, I don't care how good a company's ad agency is. I want a good match for me and my money.

Only you know what is important to you as an investor -- how often you trade, what level of customer service meets your needs. Only you can decide what investments are right for you and how often -- and by what means -- you need to check up on your little darlings.

Despite the slow-motion, fuzzy-lens sales pitch, annual rankings, surveys, online rants, and everyone's opinion (solicited or not), choosing a discount broker is not about finding the all-time best broker out there. It's about finding the all-time best broker for you.

Here's a brief guide to getting it right.

Yourinvesting personality
There's no shortage of quizzes to help you peg your investor personality type. Are you a "Worrier?" "Independent?" "Highflier," "Nervous Nelly," or "Bob?"

Ignore the clever labels and instead focus on what's in your wallet. When it comes to finding the right broker, it boils down to two things:

  • How much money you have, and
  • What investment vehicles you prefer.

Find the closest match to your own situation in the following categories.

Cash-strapped beginner
When you don't have a lot to invest, the worst thing is to pay more in fees and commissions than you make in the market. One of the biggest frustrations of new investors is the amount of money they end up paying for transactions. Typically, discount brokers charge a commission each time you buy or sell a stock or mutual fund. But you also may have to pay a fee simply to have an account with a firm.

If you're short on cash, it probably pays to save up until you can cover minimum account requirements and pay trading commissions without eating into your returns. Consider the time you spend preparing to invest as short-term savings for long-term potential. Some brokers charge no minimum for retirement accounts (IRAs). Still, you will have to be able to cover the cost of any trades you make.

The good news for you is that brokers are no longer punishing the little guy who doesn't make a lot of transactions. For example, recently Charles Schwab (NYSE: SCH  ) did away with the account inactivity fee and stopped charging its $3 order handling fee. Competitors like Ameritrade (Nasdaq: AMTD  ) and JPMorgan's (NYSE: JPM  ) BrownCo (which is in the process of being acquired by E*Trade (NYSE: ET  ) , which also gobbled up Harrisdirect) have begun offering bargain-basement trades to lure customers.

(For a side-by-side cost and service comparison, see our Broker Comparison Table and special deals for Fool readers.)

Slow and steady investor
If you've got $500 or less to invest, you may still want to hold off on opening a brokerage account. There is, however a low-cost investing alternative. One of the best ways to invest small amounts of money cheaply is through dividend reinvestment plans or DRPs, also known as Drips. They and their cousins, direct stock purchase plans (DSPs), allow you to bypass brokers (and their commissions) by buying stock directly from the companies or their agents. If you invest in Drips, you do not need a brokerage account.

More than 1,000 major corporations offer these types of stock plans, many of them with fees low enough (or free) to make it worthwhile to invest as little as $20 or $30 at a time. Drips are ideal for those who are starting out with small amounts to invest and want to make frequent purchases (dollar-cost averaging). Once you're in the plan, you can set up an automatic payment plan, and you don't even have to buy a full share each time you make a contribution.

(For more details on Drips, see "What if I can only invest small amounts of money every month?"

Mutual fund and ETF investors
If you are interested in buying only mutual funds, you can do so through most discount brokers. But first, check for fees. Some brokers charge a fee to buy mutual funds; some do not. If your broker does, it might make sense to go straight to the source -- directly from the mutual fund provider -- rather than pay broker commissions.

There are some funds that require as little as $250 for you to call yourself an owner. However, this low minimum is usually restricted to individual retirement accounts. After your initial investment, you can add as much money as frequently as you like for no additional costs or commissions. You can purchase mutual funds directly from mutual fund companies, so there are no commissions to pay to a middleman. But you should still be sure to keep an eye on that expense ratio (around 1% is in the low end of the ballpark), and you might want to check on whether it is a "load" or "no-load" fund. (Hint: Always pick the no-load fund.)

You may also want to consider ETFs -- exchange-traded mutual funds -- which are bought and sold like stocks (so you can purchase however many shares you want), but track the performance of certain market indexes, like index mutual funds.

(For more, see "Can I buy mutual funds through a discount broker?" and "Mutual Funds v. ETFs.")

Individual stock investor or (shudder) day trader
So stocks are your bag? The key here is to keep your costs of investing (including brokerage fees) to less than 2% of the transaction value. You don't want fees eating up your earnings. So if you're planning to add to your position in stocks a few times a month, a Drip or an index fund may still be the way to go.

Nowadays, with such low commissions being offered by discount brokers, it's easy to manage your account for much less than 2% of your assets annually.

If you are an experienced investor, you probably just want to know what customers think about a particular broker. Try searching our Discount Brokers discussion board by typing in the name of the broker you're researching. (You can search six months of the "Discount Broker discussion board," all of the boards, Fool articles, or the entire Motley Fool website.)

If you are a frequent trader (or a day trader), we feel it is our duty to point out that most day traders end up lagging behind the market's returns. What gets 'em? Fees. Consider adopting a buy-and-hold philosophy. It's a more sane way of life, and much better for the health of your long-term returns, too.

Schwab is aMotley Fool Stock Advisorpick; JP Morgan Chase is anIncome Investorselection. For more on mutual funds, check out ourChampion Fundsnewsletter. For more stock ideas,click here.

Dayana Yochimowns none of the companies mentioned in this article. The Fool's full disclosure policy ishere.

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