Choosing a broker to serve your investing needs is very much like selecting a doctor to help maintain your health. And if you know anything about doctors, you know that they tend to specialize, and that no two of them are exactly alike.
In fact, on rare occasions one of them can get you killed. That is, if they’re not paying close enough attention.
These days many people are self-managing their care using information available on the internet, and the same is true for investors, as well.
Prevention, Cure, and Everything in Between
With health care the goal is easy – prevention and cure. With investing, however, the goal is more complex. It varies from conservative long term growth to near term speculation, with varying tolerance for risk and the need for liquidity… and everything in between.
The first choice in today’s market is to choose between a traditional stockbroker or an online brokerage service. While at the end of the day they offer the same services – research, buying, selling, portfolio management, cash management, tax statements, etc. – the means of getting there are vastly different.
Using a traditional stockbroker is the equivalent of going to your family doctor: they’ll help you nail down your financial goals, then assist in selecting a portfolio of investments that will get you there at a minimum amount of risk, depending on the time available to reach the destination.
And, every time you buy or sell, they’ll charge you a fee. The advice, at least on paper, is free.
At least, that’s the textbook description of the relationship, and they are the very things you need to evaluate as you make your selection. Personal references go a long way in choosing a stockbroker, as they’ll all say they do these very things.
Proof through performance should be the differentiating factor
There are other ways to utilize the services of a broker without going the online route. Many banks have investment officers who – for the same basic fee as a broker, but without the thinly-veiled salesman badge – will help you navigate these same issues.
And if you belong to a company-managed 401K program, that becomes an option, as well, one that has little or no transactional cost to participants other than an annual management fee.
Going Online
Using an online broker presents certain advantages and sacrifices.
Online brokerage trades are very economic, usually a fixed amount (about $5 at many online firms) regardless of the amount of capital involved.
They also provide access to data and research, though unlike a personalized stockbroker arrangement, there will be no human being there to help you interpret and prioritize.
They also provide all the requisite tax forms and account management functions, and at no less quality than traditional brokers.
The real question is your level of need for a mentor, advisor and partner as you travel down the investment road. The choice is yours, because the risk is also yours, exclusively so.
