Buying stocks is an excellent way to invest your funds. However, you need to understand the fundamentals of investing in the stock market. You can hire a stockbroker to invest for you or do it through a firm, but are they worth it, and do you need one?
Stockbrokers are worth it no matter the amount of knowledge you have in the stock market. They expose you to a lot of options and will do more than executing your trades. They will connect you to various advisors; therefore, not having one will limit your options.
Throughout the rest of this article, you will learn more about why you need a stockbroker, what they can do for you, what to watch out for, and how to pick one.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Why Do I Need a Stock Broker?
Time is one of the most valuable assets when it comes to stock trading investments. Investing in a brokerage account allows you to transform your money into wealth. Working with a stockbroker will enable you to achieve your financial dreams in no time instead of waiting till you understand everything about brokerage.
The first option that people usually go for when they think of investing their money is using separately managed accounts, mutual funds, and bank accounts. However, a stockbroker will be your key to life-changing wealth because a brokerage account allows you to take full control of your investment portfolio.
Unlike banking accounts and mutual funds, there are no investment professionals, banking institutions, or mutual fund managers pulling strings and telling you the best ways to invest your funds. With brokerage accounts, you have the responsibility to make your wealth multiply while your stock broker provides tools to increase your chances of being successful.
You need an ideal stockbroker because he/she will give you an attractive combination of features. They include low fees charges and access to the features you want, whether it’s research or financial accounts. With a stockbroker, you have access to tax-favored retirement accounts such as IRAs and regular taxable accounts. Similarly, you will have the ability to get professional advice from time to time.
What Can a Stock Broker Do for Me?
With a stockbroker:
- You can sell or buy stocks that your broker has access to and are available in the market. It will most likely include all companies listed on NASDAQ and New York Stock Markets.
- You can tap into the pool of research resources that are made accessible by your broker to get more information on the investments you are interested in. With these research tools, you weigh different opinions and choose those that are compelling to you the most.
- You will have access to foreign exchange directly. With this, you can invest internationally and call the shots when it comes to risk management and stock selection.
- You can have a one-stop-shopping environment with top stockbrokers who offer different sorts of investments like mutual funds, bonds, and bank account products. Managing your money is thereby made easy in comparison to when accounts are spread across several financial institutions.
In addition to all those, you will have access to retirement planning, experience, the ability to handle unique stock trade requests, tax strategies and preparation, and initial public offerings. Also, you get the opportunity to invest in hedge funds or particular private equities.
What to Watch Out For With a Stock Broker?
Stockbrokers, although they offer various perks for you to invest with them, there are a few important points to keep in mind to avoid problems.
- Some brokers engage in churning. Churning is where a broker buys and sells stocks to generate commissions. Churning will be advantageous to your broker but not to you because you could be missing out on better trades. If you notice a lot of activity on your account, ask for justification. These commissions can also take a big chunk out of your wealth; therefore, don’t tolerate suspicious activities and churning.
- Brokers can make poor investment decisions. If you give your stockbroker the authority to perform activities for you on your investment account, beware that they can make poor decisions. These will negatively impact your investment, and you could lose money. By giving them authority, you may not have any recourse if you lose money.
- A full-service broker is more costly than a discount broker. When you choose to work with a broker, you can choose between a full-service and a discount broker. With discount brokers, you pay them to buy and sell stocks for you. However, with full-service brokers, you pay them to buy and sell stocks, provide advice, and guide you throughout the investment management cycle of your funds; hence they are more expensive.
- Always ask for reasons behind a recommendation. To avoid future problems and disagreements, when your broker recommends something concerning your investment account, always ask for the reasons behind it. This way, you can make an informed decision as to whether you want to push through with it or not.
- Brokers are salespeople. Brokers, no matter how well they treat you, depend on your investment to make a revenue for their firms. From the fee charges that you pay to their company for executing your desired investments, they make a commission.
How to Pick the Right Stock Broker?
Ensure you check out your broker before you sign up for a brokerage account. You can choose between regular brokers who will directly deal with you and broker-resellers who act as intermediaries between you and a larger broker firm. Before signing up, consider the following things to pick the right stockbroker.
Whether the Stockbroker Is a Full-Service or Discount Broker
There is a distinction between full-service and discount brokers. With full-service brokers, you will get services such as recommendations, professional advice, and he/she will also carry out the legal responsibilities. However, you will pay much more in comparison to a discount broker who will only buy and sell stocks for you.
Here is a video to help you understand the different types of stockbrokers:
Fees and Costs
These can be very limiting, especially if you’re just getting started and lack sufficient funds. Ensure you are aware of the fees you will incur from your brokerages, such as trade execution and brokerage fees. Other than these fees, you will incur minimums to set up your account with a stockbroker and withdrawal fees. If you are a new investor, you can open margin accounts that have higher minimum costs.
Fee Structures
One of the challenges you will face with stockbrokers, especially broker-resellers, is a complex fee structure. Their complexity will make it difficult for you to understand what you will be paying as they use some selling points for enticement. If you encounter an unusual fee structure, ensure it is legitimate and that it will suit your investment needs.
When you find that the deal is too good, look for additional fees in the fee summaries and account agreement.
Investment Styles
Choose your broker according to your investment style; you could be a buy-hold-investor or a trader. If you want to be a trader, consider a stockbroker with low execution fees because you will want to make quick gains based on a short-term price instead of holding onto stocks. If you lack experience and are frequently trading, you will likely have negative returns.
If you want to be a buy-and-hold investor, you can let your stock value accumulate with time, meaning higher fees may not impact negatively like those of active traders.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
- Best Passive Investment Platform For Exponential (Potentially) Returns: By enabling passive investments into a Bitcoin ETF, Acorns gives you the best opportunity to make exponential returns on your passive investments. Plus, Acorns is currently offering a $15 bonus for simply singing up to their platform – so that is one opportunity you don’t want to miss! (assuming you are interested in this platform). Click Here To Get $15 Bonus By Signing Up For Acorns Today! (It will take you less than 5 mins to sign up, and it is totally worth it.)
Conclusion
Having a stockbroker, especially when you are starting, will be of great benefit to you. Although you will incur costs and fees that will eat into your returns, it will be fruitful in the long run. Stockbrokers have access to research resources, different investment styles, financial accounts, professional advisors, and most importantly, experience. In turbulent markets, a broker will hold your hand and prevent you from making mistakes.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
Affiliate Disclosure: We participate in several affiliate programs and may be compensated if you make a purchase using our referral link, at no additional cost to you. You can, however, trust the integrity of our recommendation. Affiliate programs exist even for products that we are not recommending. We only choose to recommend you the products that we actually believe in.
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