Over the years, I've bought plenty of winning investments
and have picked my fair share of losers. But the best
investment I ever made was the money I put into my
first discount brokerage account.
Learning the hard way
Unfortunately, that wasn't my
firstinvestment. Before then, I worked with a
full-service broker who provided some great lessons on what
notto do with your money:
broker-sold funds, complete with
high costs and 12b-1 marketing fees. Not only were they
expensive, but they also didn't even manage to match the
performance of index funds.
A few years later, after learning how much I could save
by switching to similar funds with lower costs, I saw that
those funds also came with
deferred back-end sales charges-- meaning that I'd have
to pay a hefty fee to dump those shares.
Meanwhile, the benefits of customer service that
supposedly came with a full-service brokerage firm were
pretty much lost, because my account was too small to
warrant much attention from my broker -- except for
occasional solicitations to needlessly switch funds.
Losing several hundred dollars provided plenty of
incentive to do things the right way, and so my next
investment was in low-cost index funds. Realizing that the
large-cap index fund I chose held the same shares of
IBM (NYSE: IBM) and
AT&T (NYSE: T) as my old broker-sold fund
did saved me well more than 1% in annual costs.
In addition, seeing the wide variety of funds made me
realize the value of diversification. That led me to buy not
just that large-cap fund, but also a small-cap index fund
that now includes stocks like
Brocade Communications Systems (Nasdaq: BRCD)
and
Human Genome Sciences (Nasdaq: HGSI).
The final frontier
Yet I knew there was a lot more to investing than
just using index funds. That's why
opening a discount brokerage accountwas the real turning
point.
For the first time, no financial intermediary had control
of my money. I was solely responsible for picking stocks,
placing orders, and tracking my progress. And I didn't have
to worry about a full-service broker trying to convince me to
do something I didn't need to do.
Fly on your own
Many investors with full-service brokers feel
uncomfortable transferring their hard-earned assets to a
discount broker. They think they'll miss out on personalized
service, research tools, or other perks that online brokers
can't match.
But discount brokers have come a long way over the years
since
Charles Schwab (Nasdaq: SCHW) gave investors
their first discount option in 1975. Just take a look at our
broker collectionand you'll see the wide range of
services offered by discount brokers like
ShareBuilder ,
TD AMERITRADE (Nasdaq: AMTD),
E*TRADE Financial (Nasdaq: ETFC), and
Scottrade . You don't need to be a stock
expert to invest through a discount broker.
One of the best features of discount brokers, though, is
how you call the shots. If you need help, it's available --
but unlike many full-service brokers, you won't have it
constantly thrown at you if you don't want it. And although
discount brokers have the same profit motive to encourage you
to make transactions to generate commission income, they
typically don't have a dedicated person whose compensation is
directly tied to whether or not you make a certain number of
trades or buy a certain investment. That reduces any
potential conflict of interest and makes it much more
comfortable for you to invest the way
youwant.
Give it a try
So if you're still dealing with the hassles of a
full-service broker -- or you've never opened a brokerage
account at all -- then take a closer look at what discount
brokers can offer you. Opening a discount brokerage account
could easily be the best investment you'll ever make.
This article was originally published as
The Best Investment You'll Ever Makeon
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