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I’m excited today to share a guest post from Julien Brault, CEO at Hardbacon. It’s one half of a content swap with Julien (my guest post for Hardbacon will appear there soon—stay tuned)!
About Hardbacon
Hardbacon features a variety of tools and educational content to help Canadians make better financial decisions. They offer an app, comparison tools, and a blog full of helpful articles (including many about FIRE)!
About the guest post
Julien’s post covers a topic I don’t write enough about here: investing. The post is a fantastic, back-to-the-basics article—perfect for those who are just getting started on their DIY investing journey.
With so many choices in brokerages, it can be tough making that crucial first decision—where should I hold my investments? Julien walks us through what you need to consider as you narrow down your decision. I hope you find the info helpful and educational!
How to Select the Best Brokerage for Your Needs
When it comes to investing, there are more options at your fingertips today than ever before. Gone are the days of having to call your broker to buy or sell a stock or paying exorbitant fees to a money manager to assemble and monitor your investment portfolio.
With the advent of technological progress in the financial services industry and ruthless competition among brokers, DIY retail investing is on the rise. Today’s environment makes investing affordable and convenient, and accessible to those earning even a modest income.
If you’re keen on opening an investment account and making your first trade, your first step is to find a reputable and dependable broker. Read on for some valuable tips on selecting the best broker for your investing needs.
Know your investment goals
Before you begin your quest to find the ideal broker, you should take some time to clarify your investment goals. Are you looking to establish a low-maintenance investment strategy that involves purchasing mutual funds for the long term? Do you plan on creating a customized portfolio involving a dozen stocks? Are you interested in day trading, or does a buy-and-hold strategy appeal to your more? Do you need access to state-of-the-art features, or are you content with simple “buy” and “sell” buttons?
These questions, and others like them, are essential to ponder, as they’ll dictate the type of brokerage account most suitable for you. Evaluating brokers will be much easier once you’ve determined what your investment goals are.
Once you’ve determined your investment goals, it’s time to dig in and examine some key factors that characterize brokers.
Commissions
The commission is a fee you pay each time you execute a transaction on the broker’s platform.
You want to avoid brokers that charge hefty commissions, as they can quickly add up, erasing a sizable chunk of your investment returns. Today, most brokers charge under $10 for trades on popular investment products, such as stocks and ETFs—you should never have to pay more than this. Even better, more and more brokers are jumping onto the zero-commission bandwagon, abolishing commission fees altogether.
A quick rule of thumb regarding commissions: the more frequently you plan to trade, the lower the commission fees you should seek out.
Account fees
Brokers can levy various fees on your account. Some of the most common are:
- Annual fees
- Foreign currency conversion fees
- Inactivity fees
- Fund transfer fees
- Additional commissions for trades involving bonds, options, and futures, and other less-commonly traded investment products.
As with commissions, look for brokers that keep fees to a minimum. Low fees are essential if you anticipate maintaining a small investment portfolio. You want to avoid a situation where your fees make up too large of a percentage of your total balance, defeating the purpose of investing in the first place.
Account minimum
The account minimum refers to the amount of money you need to deposit to open your account with the broker. Most brokers require an initial deposit of several hundred dollars and up to $1,000. Some require more than this, while others have no account minimum, allowing you to start trading with as much as you’re comfortable with.
Investment options
When evaluating brokers, explore the types of investments you’ll be able to purchase on their platform. Some investment choices offered include:
- Individual stocks
- ETFs
- Mutual funds
- Options
- Bonds
- Cryptocurrencies
- Guaranteed investment certificates (GICs)
- Precious metals
Some brokers offer trading only in stocks and ETFs, while others permit transactions involving bonds, commodities, and emerging asset classes, like cryptocurrencies. Some also provide access to international exchanges, over-the-counter (OTC) assets, the initial public offering (IPO) market, and derivatives, such as options and futures.
Suppose you’re an informed and skilled investor who wishes to craft complex investment strategies. In that case, you should opt for a broker that provides access to a broad array of investment products. If you’re relatively new to investing and aim to construct a basic, no-frills portfolio, you’ll likely do fine with a broker that offers fewer investment options.
Market data and other tools
Each broker offers a range of financial market data and analytical tools designed to aid investors in managing their portfolios and discovering investment opportunities.
Some brokers provide little in the way of data, offering only delayed quotes for stock prices and limited information for analytical purposes. Others provide real-time streaming quotes and offer a plethora of tools, such as sophisticated charts, customizable watchlists, alert notifications, news reports, and company financial statements.
If you’re primarily a long-term and passive investor, you’re likely to find most of these features superfluous. However, if you live for the financial markets, spending hours watching price charts while listening to Bloomberg in the background, you may find value in using them.
Reliability and security
Delayed transaction processing and glitches can cost you money, so be sure to research a broker’s track record regarding trade execution. And while you’re at it, gather some insight about the broker’s customer service practices—you don’t want to be left out in the cold if you’re desperate to get out of a losing trade and your account freezes without warning!
A good broker should also supplement its desktop trading platform with a mobile version. An app will enable you to make impromptu trades and always keep a watchful eye on your account balance.
Security should also be on your radar. Does the broker offer two-factor login ability? How are your assets secured? What is the broker’s policy when it comes to fraud and theft? These are all applicable questions to ask and investigate.
Final thoughts
Choosing the right broker is a crucial decision that can make a severe impact on your investment returns. Be sure to dedicate some time and effort to rigorously evaluate your options, keeping your investment goals and needs in mind.
Look for a broker that offers reasonable commissions and fees, investment products you’re seeking, reliable trade execution, and an account minimum that falls within your budget.
Share your thoughts
It’s Chrissy again! Thanks to Julien for sharing his tips on selecting a brokerage. It’s not an easy decision, but I hope you now have a solid framework to base your decision on.
Now I’ll turn it over to you—I’d love to hear your thoughts on Julien’s post. Do you have additional tips on selecting a brokerage? Which one do you use and why? Share away in the comments below!
Don’t forget to check out Hard Bacon and all their helpful tools and articles!
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10 Comments
Liquid
June 2, 2021 at 6:59 amIt’s nice to get a refresher and to get back to basics. I’m using Interactive Brokers at the moment. I like to chase above market returns so low transaction costs are important to me. $1 commission for trading stocks and options works well for me. 🙂
Chrissy
June 2, 2021 at 4:50 pmHi Liquid—exactly! I also enjoy reviewing basic info from time to time. I often still pick up some new info or, at the very least, it helps to reinforce things I previously learned.
Wow, $1 trades! That’s amazing! If I ever go back to DIY investing, I’ll definitely look into IB again.
PP Gal
June 2, 2021 at 10:06 amI am using Questrade to buy ETFs and stocks. For stocks buying and selling I might open another account with lower fees, website app, and mobile app for quick access. I am more of a buy and hold investor building a passive income through dividends from companies with good ESG rating.
Chrissy
June 2, 2021 at 4:55 pmHi PP Gal—I also love Questrade! (Even though I do very little of my own buying and selling these days—we have a financial planner and his investment manager to do it for us.) However, what we do manage ourselves, we keep at Questrade. They’re not perfect, but I’m overall very happy with the service and fees.
I like your approach! It’s a solid way to invest. Thanks so much for reading and commenting!
Maria
June 10, 2021 at 9:45 amHi Chrissy, I’m looking for financial planner recommendations. Are you happy with your planner? Can you share the info? Thanks!
Chrissy
June 10, 2021 at 10:51 amHi Maria—we’re very happy with our financial planner and would highly recommend him. There are also other planners and services that I’ve used or heard of that are excellent.
Email me (chrissy at eatsleepbreathefi.com) to tell me more about what you’re needing help with so I can point you in the right direction.
David @ Filled With Money
June 8, 2021 at 4:12 pmIt sure is an important decision to pick the right brokerage. It’s more important than ever to pick a brokerage that doesn’t have any commission fees or trade fees. With so many free brokerage apps these days, charging commissions for trade executions is almost like robbery!
Chrissy
June 9, 2021 at 3:34 pmHi David—yes, it can make a huge difference to pick the right brokerage! With so much selection these days, there’s no reason to go with one that doesn’t offer low fees and other helpful features.
We don’t have as many options as you have in the US, but it’s slowly improving here in Canada. Thanks so much for reading and commenting!
Ana
June 21, 2021 at 4:52 amThis was a wonderful overview of investment options. We do have a plethora of choices today to fit any investing need and personal comfort level. I can say I’m mostly a buy and hold investor but I often wonder if I shouldn’t venture out a little more. Thank you for the great read.
Chrissy
June 21, 2021 at 4:36 pmHi Ana—we live in a wonderful time, to have all the investing options (and free knowledge) that are so readily available to us. Thanks so much for reading and commenting!