Buying and selling stocks is cheap; but get smart first
— -- Q: How do I set up an online brokerage account worth about $2,000 with one of the deep-discount firms?
A: Investors looking over their devastated portfolios are starting to question everything.
Those who hired professionals, only to see their portfolio get shredded, wonder why they paid those advisory fees. Others, hoping to hang onto the money they have left, are realizing the hefty fees they pay to some mutual fund companies or brokers in trading commissions are eating into their bottom line.
It's a shame it took a bear market of this size to get investors to pay attention to the costs of investing. At the end of the day, when it comes to investing you can really only control the amount of risk you take and fees you pay.
When it comes to controlling fees, the deep-discount online brokers are tough to beat. Brokers such as TradeKing.com, Zecco and Scottrade let investors buy and sell stocks and options for $5 or less. If you're able to keep a considerable balance, of $25,000 or more, some of the banks, such as Wells Fargo and Bank of America, offer free trading.
Some of the other brokers charge more, but try to make up for it with extra services. Charles Schwab, TD Ameritrade and E-Trade offer trades for around $10, but all provide access to bricks-and-mortar branches. Charles Schwab is also an industry stand-out in that it provides investors with a number of places to park idle cash and collect a competitive level of interest.
And there are online trading services geared toward beginning investors, such as ShareBuilder and BuyandHold.com.
Opening an online brokerage account is simple. Once you have looked at all the fine print and chosen which brokerage firm is best for you, you follow an online signup process. Generally, all that's required is some personal information, a few digital signatures and instructions on how to fund the account. Most brokers will let you transfer cash from your checking account electronically.
I'll end this column, though, with a word of caution. Just because it's easy and inexpensive to handle your own investments, it's critical that you take the time to learn how to do it properly. I can't tell you how many investors write to me, after making a bet on a speculative stock, that they can't believe they lost their money.
For instance, you should understand the concept of asset allocation before you buy your first stock. Here is a previous Ask Matt column on asset allocation.to help you.
If you don't think you have the time it takes to understand what you're doing, trying to invest by yourself might cost you more in mistakes than you'll save in fees. In those cases, it might be best to hire someone you trust to help.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.