Okay, we’ve been discussing the most basic of basics over the past few months. You get it. You know what a stock is, you know what a mutual fund is, bonds are a no-brainer for you. You have paid off your credit card debt, and you have saved some money strictly for investing.
Here’s where the fun starts! You get to pick where you’re going to put your money. So, if you haven’t already become savvy computer gals, it’s time to learn at least how to buy and sell stocks through an online brokerage firm.
Decades ago, the only way an individual could invest in the stock market was by opening an account with what is called a “full service brokerage firm.” Companies like Merrill Lynch, E. F. Hutton and others provided you a place to put your money and a broker assigned to your account. It was his job to do the investing for you, sending you monthly statements informing which stocks he had bought and sold during that period. Depending on how involved you wanted to be, he might call you to let you know what he wanted to buy and sell in your portfolio. More often than not, however, he had permission to decide what was best for your investing based on information he gathered from you and hopefully kept on file and in mind. He earned a hefty commission for doing your work for you … and you hopefully sat back and trusted him to make your portfolio grow in value.
Trouble was, this wasn’t always the case. Often the broker was buying stocks that his company had a vested interest in buying and selling. And he always made his commission whether he gained or lost money for your account.
The big winner? The stockbroker and his company.
Too often the loser? You, the investor.
But no more. Since the personal computer has become part and parcel of our lives, and the Internet has become our new best friend, things have changed in the investing world … and for the better.
This week, I’ll take you through the ideas behind researching an online discount brokerage account to show you just how easy it is to get started putting together your own dynamo portfolio. (Next article, I will give you practical advice how to find these brokers to follow-through on the procedures for applying for an online account.)
In recent years discount brokerage firms have multiplied like rabbits. Everywhere you look on the Web you will see ads for various firms with ever-lower commissions. Many of these firms offer 50 free trades for putting money into an account with them. Therefore, the cost of investing in the stock market has become increasingly inexpensive.
So, how do you decide which one to put your money in? Well, you need to think about what you want: convenience, user-friendly Web site, perhaps a human to speak to should trouble or questions arise.
Make a list, check it twice! Decide what you absolutely must have in an online broker and what you can forego. For me, for example, being able to get into the car and take a check to my brokerage firm to deposit is pretty important. I’m impatient and don’t always like to wait for the mail to do my banking for me. So having a brokerage firm within driving distance is significant. I also like dialing a phone number and speaking to someone who is knowledgeable and who even comes to know me personally. So that’s a biggie for me.
What about you? What are you looking for in an online brokerage firm and what will you absolutely not settle for?
(Remember too that if you find after six months or a year of dealing with Firm A, moving to Firm B is not impossible and can be done fairly easily online. So don’t stress out too much if you open an account and then discover you wish you had gone with your second choice.)
Of course there’s always full-service brokerage firms, which are still available. If you are absolutely wracked with fear and trepidation about managing your own stock portfolio and you know someone who recommends a good broker at a full service firm — that might be the route you want to take. My suggestion then would be to keep some of the money back from the full service route and open up an online account with which you can “play.” If it isn’t your entire fortune, you may be more willing to experiment, to try it yourself, knowing that the risk is minimized.
So … first, you’ll make a list of discount brokerage firms, check them out as best you can, and make a decision as to which one is best for you. Maybe 2007 is the year you take this step into financial independence and the sense of “I can do it myself!” that thrills two year olds — and should do the same for you and me!!