Once you decide you're ready to invest in individual stocks (ideally after you've rid yourself of high-interest debt), you'll need to make another decision: how you'll get your hands on those stocks. Unfortunately, the New York Stock Exchange doesn't have a drive-through window, permitting you to order 100 shares of Microsoft
When it comes to brokers, you have a choice: a discount broker or a full-service broker. The biggest difference between the two is moolah -- as in the money you pay in commissions. Discount brokers on the Internet have revolutionized equity investing in recent years. You can now buy or sell stocks online for as little as $7 or $8 per trade. Compare that to the $55, $80, or $110-plus you might pay to a full-service brokerage house.
So why would anyone pay full-service (we call them "full-price") brokerage fees and cut away at the compounded growth of one's savings? Good question. Your full-service broker will slap your knee, shine his pearly whites, and say you're a silly Fool to question him. He'll justify his high price tag by saying he's selling you access, information, and advice. You can't go it alone, not in the big, bad, mysterious world of investing, he'll implore you.
Once upon a time, you didn't have much of a choice. You had to suck it up and pay this guy. Either that or keep your savings in your mattress or in your passbook savings account earning that whopping 1%. The powers that be, the Wise as we refer to them around Fooldom, set up a system that kept the little guy in the dark and at their mercy.
Not anymore. Enter the information superhighway -- the Internet. Today, with a computer you can get as much information about potential investments on Main Street as you can on Wall Street. With up-to-the-minute news, stock quotes, federal filings, and online communities built to exchange information, you can research the companies you're interested in on your own and make thoughtful, educated decisions about your investments.
Should you ever use a full-service broker? Well, the decision is yours, which is the point of our answer. All your investment decisions should be yours and not those of that guy named Tad who criticized you for being an English major while he studied finance and became a broker. If you happen to find a full-service broker with whom you're comfortable, whose advice you agree with, who helps you understand your investments, and who doesn't gouge you too much, nobody's going to stop you.
Remember, however, that even if Tad is your best friend from high school, he's faced with a conflict that pits his best interests against yours. Brokers are salespeople: They make their money only when you buy or sell. Because of that, they may try to get you to trade too frequently to make commissions for themselves -- generating "churn," which means you lose money to them and to Uncle Sam in the form of capital gains taxes.
For more on why you might need a financial advisor, read this article. And take a look at the Fool's Discount Broker Center for a comparison of rates and services of the leading discount brokerage houses.
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