Tuesday, August 25, 2009

4 Tips for Choosing the Right Discount Broker for You

Most investors I run into these days use online discount stock brokers to manage their portfolios. This has been a great boon for individual investments because we went from +$100 stock trades to approximately $5 trades (or even free). In my opinion, there is absolutely no reason anyone should be spending more that $10 per trade given the huge competition available. My experience has shown that the extra "services" provided by online brokers with higher trade prices are not worth the additional fees and in most cases are available online.

With that in mind, I have compiled what I believe to be four good tips that will help anyone work with their online discount stock broker better. If you simply buy index funds or individual dividend stocks, then I think these tips will help save you money and time:

1. Don't Pay Extra Commissions for Services that Are Often Available for Free

Discount brokers will try to dazzle you with a laundry list of things you can do when you are a customer. Some of these tools can be very helpful. Most of these tools can be found for free elsewhere. For example, one broker I recently looked at touted that they offered their customers free access to analyst EPS estimates. That can be helpful if you are trying to determine the future value of a dividend stock. However, if you just went over to Yahoo! Finance and looked up a stock ticker and clicked on Earnings Estimates the same data would be available to you.

2. Ensure the Discount Broker Offers Access to the Products You Want

This will not be a problem for most people, but be sure to check it out just in case. Some brokers do not provide investors with access to certain investment products such as options or more importantly access to companies that provide the funds you want to invest in. For example, if you want to buy Vanguard mutual funds, then not all brokers offer them. You can often buy the ETFs, but the other funds may not be available.

3. Watch Out for Miscellaneous Fees

Cheap trades may mean that the broker will try to gouge you on other fees to get more money out of you. Always take a look at the other fees section of the broker you are interested in and look for anything that may apply to you now or in the future. For example, transfer out fees may be very high compared to other brokers. If you plan to stay with this broker for ever (and that is a long time!) then that may not be a problem. However, if it might be then you need to be comfortable with those higher fees.

4. Linking to Your Bank Account

This is one that seems to escape people, but it is pretty important. You need to be able to easily get money in and out of your broker so the ability to connect to your bank is important. If you need to wire transfer money around then know that that takes time and often banking fees. My advice is to look for a broker you can set up via online bill payment in your online banking area.

I know there are more tips out there...let me know using the comments section below.


This article was written by The Dividend Guy. You may email questions or comments to me at info@thedividendguyblog.com.

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