Sunday Refresh No one taught me (Laura) about finance in school...
Unless you count the one day in eighth grade when my home economics teacher showed the class how to fill out a check.
No one explained the importance of an IRA... what makes the stock market move... or why not having a 401(k) is throwing away free money.
This problem is widespread. According to a 2016 survey from the Council for Economic Education, only 20 states require economics in high school. And that number fell from 22 in 2014.
I'm one of the lucky ones. In college, I worked in banking and had a mentor who guided me through the "jungle" of investing.
Then, in 2008, I started with Stansberry Research – the largest independent financial publisher in the world – which has expanded my financial knowledge more than I thought possible.
I have access to some of the world's greatest financial minds, research costing hundreds of thousands of dollars, and data systems the average investor probably doesn't even know exist.
But when it comes to investing, the hardest part is getting started.
I'm talking about opening a brokerage account.
You have lots of choices...
At the most basic level, the role of a brokerage firm is to facilitate trades. Depending on the type of broker, it may also provide research and advice. The more assistance the broker provides, the higher its commissions and fees.
When it comes to buying securities (like stocks, bonds, etc.), you have two main brokerage options: full service or discount.
Full-service brokers work for firms like Merrill Lynch, Wells Fargo, and Edward Jones. They interact directly, person to person, with clients. They also frequently call customers with buy and sell recommendations.
Full-service brokers can be useful if you need a lot of hand-holding. The problem is brokers who take care of everything also charge fees and commissions for their services. Those charges can add up to as much as 1%-2% of your assets every year.
I prefer discount brokers. You interact mainly with their websites. These brokers normally don't talk with you on the phone unless it's absolutely necessary. They're not giving you buy and sell recommendations. (And they charge more if you transact with them over the phone.)
In exchange for accepting less human contact and spoon-feeding, discount brokers lower your transaction costs considerably. The fees and charges are small, which means more money for you.
You have dozens of options when it comes to finding a good discount broker.
Here are a few things you should look for...
1. Fees and commissions. Most brokers charge a commission to trade. But in early 2017, a fee war broke out among the big brokerages. Fidelity slashed fees from $7.95 to $4.95. TD Ameritrade cut trading fees from $9.99 to $6.95. E-Trade, Schwab, and others similarly cut trading commissions. Also, look out for fees to sell investments, reinvest dividends, and trade options.
2. Account minimums. When you're ready to open a brokerage account, some brokers might require you to deposit a certain amount of money first. Account minimums can range from $0 to more than $2,000. Higher account minimums are likely if you want to do something more advanced, like options trading.
3. Special offers. Brokerages often have special offers, like 30 free trades or opening an account without a minimum deposit. Once you find a brokerage you like, just Google the broker's name and "special offers." It's an easy way to find what's available. I've done this before to get several months of free trades.
There are lots of sources to find summaries of brokers. One of my favorites is from the financial journal Barron's. Every year, Barron's ranks the top online brokers with a detailed analysis of each. The downside is that you need to be a subscriber. I highly recommend checking out its list of the best brokers in 2017.
For a free resource, check out NerdWallet's discount broker list. It's not as detailed as Barron's, but it's an easy way to get started.
Which brokers do you love? Which do you hate? Let us know at [email protected].
Have a great week,
Laura Bente and Amanda Cuocci
February 11, 2018