Can a Stockbroker Make You Rich?

With nearly half of the United States population having no stake in the stock market, we must raise awareness regarding the various investment opportunities available to the public. Most people are introduced to stocks by brokers who imply significant returns on a potential investment.

A stockbroker can make you rich, but this is not their highest priority. Since they’re paid per transaction, their interests lie in making you sell and buy at short intervals so they can maximize their commission. The best way to get rich, however, is to buy and hold for significant periods.

In this article, you will not only learn the two reasons why stockbrokers aren’t likely to make you rich, but you’ll also learn why financial advisors, robo advisors, and index funds are all better than blindly trusting a stockbroker.

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!

Why Stockbrokers Won’t Make You Rich?

If a stockbroker recently approached you, chances are you were promised potential rewards. You may be tempted to assume these results to be guaranteed, but there is no such thing as a guarantee, no matter how confident your broker sounds. 

Additionally, you should keep in mind that a stockbroker is not penalized for prioritizing his commissions over your financial interests. Since the broker doesn’t have a fiduciary duty to you, you cannot sue him for ‘advising’ you to invest in sinking stocks for his own fee.

In layman’s terms, let’s suppose you have a box of gold and a box of coal. The gold is worth $2000, and you’re supposed to sell it for $200. You get a $1 commission out of facilitating this sale. On the other hand, the box of coal is worth $10, but you’re supposed to sell it for $2000. However, for selling this subpar box of coal, you will make $1,500 in commission. Which one are you more likely to sell to someone who is looking to invest $2000?

Most brokers would sell the overvalued subpar asset (box of coal) just to make a high commission. To make matters worse, they would make you sell and buy multiple times to make more per transaction.

On the other hand, a financial advisor makes money in proportion to how much he grows your wealth. In the analogy above, if you made 10% of the profit someone would make upon buying one of the boxes, which one would you sell them? Of course, you’d sell them the undervalued box of gold. Your client would then sell it at full value and make money, of which you would receive a percentage.

A financial advisor’s compensation is tied to the performance of your portfolio. Since you make more money with fewer transactions and holding for long periods, a financial advisor will not pressure you to buy and sell. 

Furthermore, a financial advisor has a fiduciary responsibility and cannot prioritize any other compensation or interests over your financial wellbeing. If a financial advisor persuades you to buy stock in a way that benefits him (hidden commissions) but impacts your portfolio adversely, you can take him to court.

Finally, a financial advisor receives education on using financial instruments to make his clients the most money, whereas a stockbroker only learns how to sell stocks. This difference in the two’s initial education can create a massive difference in results despite best intentions. Even if a stockbroker seems well-intentioned, he isn’t as qualified as a financial planner or a wealth advisor to understand your situation and help you make the most money long-term.

Trying to get rich by letting a broker gamble with your money can work just as much as gambling can work. Ultimately, the most reliable way to get rich is to keep your active income and be smart with your savings by placing them in the right investment vehicles that will grow over time with minimal risk.

Robo Advisors: Better or Worse Than Brokers?

Financial advisors circle larger investors because they make money based on a percentage increase in wealth. For an average blue-collar worker, a qualified financial advisor may charge a flat fee. And that might not be something you may want to pay initially. There’s no point in making $1000 a quarter if you’re paying $1,250 in fee.

Fortunately, there is a solution that automates the kind of advice a financial planner would give someone in your position. These advisors are essentially computer programs that are fed the same rules and data that financial planners learn when getting their certification.

Robo advisors are algorithm-driven and are often better at humans in implementing passive indexing strategies. Unless you’re investing over $25,000, you should stick to Robo advisors and let your portfolio grow steadily before switching to a personal advisor for bespoke strategies.

How To Get Rich Investing in Stocks?

If you don’t like robots handling your cash and have lost faith in brokers who try to assume the role of an advisor, then you can take your destiny into your own hands and pick the stocks you wish to invest in. This is risky if you haven’t taught yourself how to invest. It is worth remembering that in any investment opportunity, past returns aren’t indicative of future performance.

The riskier investing gets, the more you must diversify to off-set your potential losses with the gains from other sources. The best way to diversify your stock portfolio is by investing in index funds. Index funds track a country’s economic powerhouses and include a vast chunk of stocks at adjusted proportions to create a reliable investment growth vehicle.

S&P 500 measures the performance of the top 500 US-listed companies. Investing in the S&P 500 is quite literally like having a stake in the US economy. However, with an average annual return of around 3%, the safe index is no get-rich-quick scheme.

How Should I Use Brokers and Advisors?

Now that you have learned about stockbrokers, financial advisors, Robo advisors, and index funds, let’s discuss which option is best for you, depending on your context.

• Stockbrokers – You should use a stockbroker to execute transactions on stocks you have picked if you know how to choose the right stocks. Under no circumstances is it wiser to use your stockbroker as an investment advisor.

• Robo Advisor – If you wish to invest under $25,000 and are willing to hold the investment for at least four years, you should use a Robo advisor and choose the least risky option from the plans made available by the digital platform.

• Financial Advisor – If you wish to invest over $50,000 and are comfortable investing in various assets, including but not limited to stocks and bonds, you should hire a financial advisor with the best track record for clients similar to you.

• Self-Selected Investing – If you want to save money and facilitate its steady growth over a decade, invest in low-risk assets like government bonds, fixed income opportunities, and reliable index funds with net growth over ten years. If you want to be more aggressive with your investment goals, investing in growth stocks and alternate assets would be the way to go. In essence, depending on your investment objectives and risk appetite, the direction that you take here might vary. But you should note that you can hold no one but yourself responsible for the results of self-selected investing as educational purpose content often isn’t a replacement for financial advice.

Author’s Recommendations: Top Trading and Investment Resources To Consider

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• 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!

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Conclusion

Stockbrokers may approach people with significant savings to persuade them to get a stake in publicly listed companies. While it is wise to invest in certain stocks, there is no reason to trust your broker with your financial wellbeing as their interest is in maximizing fees. A financial advisor is a much better alternative to rely on when you’re trying to get rich by investing.

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!

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