Twenty years ago or so, if you wanted to invest in the stock market, you had to find a broker to assist you, advise you and invest for you.
Not so any more.
The previous article talked about finding the online brokerage firms where you might want to open an account. Now, how do you find those firms?
You can go to any number of sources for online discount brokerage firms. If you know people who invest, ask around. With whom do your friends, your boss, your relatives invest, and are they happy there? What do they like best about their brokerage firm? What irks them? Be an investigative reporter and keep track of the information you gather.
Another method of research is the Web sites for financial information (e.g., yahoo.finance.com, msn.moneycentral.com); look at the advertising being done there for discount brokerage firms to learn what exists. You can click on a link to any of those firms and navigate around, ask for help on their Web sites or call their 800-phone number. You can also do a Google search for names of online discount brokerages.
When you find a couple of companies to contact, make a list of your requirements and questions so that you have them at hand when you need them. (My theory, for what it’s worth, is if it takes you more than a few minutes to speak to a human being, it is not the discount online brokerage firm for you. I guarantee that at some point you will need to speak to a person, and it shouldn’t be more difficult than calling the President at the White House. But that’s just me. You may be more patient and have more endurance than I.)
One of the questions needs to be the cost of buying and selling stocks. (Others may be: Do you have other fees?; Are there restrictions I should know about?; Can I use checks on my account?)
Different brokerage firms charge different amounts. Some are as low as $5 a trade, but these are the ones that are barebones, nothing but a Web site where you enter your stock purchase or sale, and hit the button sending it to the powers that be in the stock market universe. Others charge you more, but include good research tools because you have an account with them. However, remember that much of the stock research for decision making about what to buy and when to sell is free on the Internet. (Remember when I said that the Internet is your friend when it comes to investing in the stock market? This is never more true than today, but it may become more and more beneficial as the years roll by.)
My recommendation is not to pay more than $10 per trade, buying and selling a stock. Anything more eats into your profits and inhibits you from making a trade when perhaps it should be made. Ten dollars per trade is a nice round number that can easily figure into your transactions.
When determining which firm to use, take your time doing all of this. Even though changing brokerage firms is not like pulling fingernails, it’s not something you want to do frequently — if only because it slows down your investing process. You can’t have transactions unsettled before making a move elsewhere. And that move, which involves printing up forms from the Web site of your new brokerage firm allowing them to transfer your portfolio to them, is fairly easy. But you still don’t want to make a habit of moving around among the various brokers. So find one that suits your needs and then give it at least six months to a year before you re-evaluate your opinion of it.
Remember too that once you decide on a brokerage firm and fill out the form to open an account (either online, usually found in their “forms center,” or going to an office in person), it will take a few days for your check to clear, much as it would putting it in a bank. In fact, opening a brokerage account is very similar to opening a checking or savings account at the bank; you will be asked many of the same questions and be required to give much of the same information.
So after determining the perfect brokerage firm, you go to their Web site and print up an application for an account, decide whether it’s a sole owner (just you) or a joint account (with a spouse or significant other), and you fill in the requested information. Then you mail it to the address on the Web site along with the check you’re using to open the account. Make sure it’s a check from you as the owner of the account; brokerage firms as a rule will not take third party checks. So if Aunt Martha has written you a check for your birthday that you want to use to open the brokerage account, first deposit it into your checking account and then write the brokerage firm a check.
Then sit back and wait for the notification (usually via email) letting you know the funds have settled and you’re ready to trade.
Take a deep breath. Next time we’re going to begin learning the basics of making a buy — the logistics of how you do this online.
You’re on your way to being a Wall Street pro!!