During tough economic times and times of volatility in the stock market, many look at their full service stock broker and wonder if they could be doing a better job. Many question their full service broker’s fiduciary, competence and expenses. Most investors only wake up to the fact when the stock market does so poorly, and it becomes obvious they aren’t at least matching market losses.
The old joke of why do they call them “brokers”, because they are broker than you. Not to say all brokers are purely sales people. There are some great financial planners, and stock brokers out there that truly do care about you. Some people cannot effectively manage their finances and it might be best to allow someone else to manage their money. The issue though that rings always true: no one cares more about your money than you do!
After all over the long term many full service stock brokers, and the usual actively managed funds that come with them, usually wind up losing against the market averages at least equal to the amount in expenses paid. In many cases you are at a loss to the market averages.
Expenses matter. Big time! After taxes being the number one factor that decreases returns, expenses come next. Expenses not only from the funds you pick (meaning active over indexed based mutual funds), but also the fees to execute trades. The commission fee when you purchase a stock, bond, ETF or mutual fund. Fortunately commission fees have come down dramatically in the past 20 years. You can find many discount brokers that are commission free on selective trades, or sub-$10 for every trade.
I’m not saying it always happens with a full service stock broker, but it is tempting to actively trade (to churn) your account, which then racks up trading fees. Stock brokers, full service or discount, make money no matter if you are coming or going, winning or losing. So they still make money even if you lose money with your investments.
If you feel you have the ability, the patience, and nerves to invest yourself, it can be very rewarding. There are many discount brokers today that offer commission free trades, or signup bonuses. Many offer free trades either for a specific time frame, or for X amount of trades when you sign up.
The discount stock brokers understand during tough economic times, people tend to switch brokers. Right now the discount brokers are offering some great deals. Some of these deals are too good to pass up. There are two discount stock brokers that consistently offer promotions to new customers.
For both discount brokers you should check back often, because their promotions are constantly changing.
This has been a guest post by Investor Junkie a fellow personal finance blogger.