At this point, you have decided to become an independent investor and have cobbled together your first $100 to invest.  Along the way, maybe you experienced some changes in how you view or consider things regarding money.  Since I made the decision to be an independent investor and worked to gather my first $100, I make very different buying decisions with very different criteria because I have a much greater awareness of how any buying decision may impact my ability to invest and the timing of additional investment.

At this point, our goal is to select a broker and open an account.  Later we will discuss how to make our first investment purchase.

Our decision now is to select an online broker to use and open an account to make our first investment.  The online brokers are fiercely competitive which can make the decision of which one to use challenging.  I have spent a lot of time roaming the websites of many of the online brokers and can say that you can’t go too wrong with any of my top five online broker choices.  No matter which one you choose to use, you will experience a learning curve that you must ascend before you get very comfortable and proficient.

Here is my Top-5 list of online brokers:

E-Trade (www.etrade.com)

TD Ameritrade (www.tdameritrade.com)

Charles Schwab (www.schwab.com)

Fidelity (www.fidelity.com)

Capital One (www.capitaloneinvesting.com)

These brokers are generally referred to as retail brokers because the accommodate independent/individual investors that invest for their own accounts and own purposes.

All five online brokers provide websites that are solid, usable tools for novice and practiced investors.  Each broker has their own unique look & feel with plenty of tools and resources.  The hard part now is to effectively evaluate brokers on the things that matter most to you and we don’t yet know what things should be important us.  All five have good tools for individual investors including research, recommended lists of mutual funds and exchange-traded funds, investor education material, and many more things.  At this point, all five will serve any independent investor as they make their first foray into the investing world.

Other popular online retail brokers include Scottrade, Firstrade, Vanguard, and MerrillEdge.  These brokers a just fine and work well but I have found them either less user-friendly, cumbersome, or expensive.

Just as a point of reference – A number of other online brokers are known as deep-discount brokers and they cater to people who more experienced and to people who are interested in more active trading.  These brokers usually require $5,000 to $10,000 in initial funding to open an accounting and they generally charge much lower commissions.  They tend to have more sophisticated screens and they don’t provide any of the support like research or investor education materials that a first-time investor needs and typically provide a lot of advanced features on an ala carte basis with a monthly fee which can add up quickly pushing the cost of using these brokers higher than those in my Top-5 list.  These brokers include Interactive Brokers, TradeStation, TradeKing, OptionsHouse (formerly TradeMonster), Lightspeed, and a few others.  These are the kinds of online brokers a day-trader or very active trade would use for high-volume trading.  I don’t think the deep-discount brokers are a good fit for first-time investors.  Until an investor gets some experience in and has a solid foundation of the investment world, we should stick with the online retail brokers for our $100 Investor purposes.

Broker Reviews & Comparisons

Because of the competitive landscape and the degree to which online brokers strive to increase efficiency and add features, I find keeping track of who is doing what very difficult.  I have found a good online resource to help evaluate the hundreds of features online brokers provide at www.stockbrokers.com.  The site has reviews and a very helpful comparison tool that tracks over 270 different features, tools, and functionality provided by online brokers.  I suggest we take a look at the reviews and comparisons provided by places like www.stockbrokers.com and keep up to date on the options available to us.  Take a little time and do some homework on the how the online brokers compare to each other as part of making your broker selection.  The reviews and comparisons can save many hours of compiling the information by visiting each broker’s site individually.

Another excellent resource is the American Association of Individual Investors (AAII).  Their website is www.aaii.com.  The AAII is a membership organization and I view the AAII as a Consumer-Reports type resource.  Membership is $29/year, $39/4 yeares, and $390 for a lifetime membership.  I am a lifetime member and suggest that all independent investors maintain a membership in the AAII.  They offer a 30-day trial to let you explore their resources.  Their educational resources are worth many, many multiples of the membership fees.  Included in membership are great tools like a portfolio tracker, monthly publication, access to their stock and mutual fund portfolios in which the AAII has invested actual dollars and provide guidance and education on how to run and maintain similar portfolios.  They have a few additional resources the can be purchased in addition to regular membership dues including their StockInvestorPro which is a solid stock-screening tool, their Stock Super Star newsletter, the Dividend Investor newsletter, and Mutual Fund Investor.

Yes, I am a big fan of the AAII.  Go give the AAII a test drive and see what you think.

I want to offer some additional criteria that may be useful when selecting your first online broker.  These criteria may seem simplistic, or maybe even a bit silly, but remember, I think that the online brokers are all very competitive and fairly comparable with the tools, research, education, and other functionalities that an investor will need and want at some point.  Because as a first-time investor, we don’t yet have the capacity and ability to differentiate good brokers from great brokers or weight advanced functionalities.  At some point, we will have experience, knowledge, and understanding that may lead us to change brokers but until then, the Top-5 are all fairly even and as novice independent investors, we can’t go too wrong with any of them.

Look & Feel

Accessibility & Navigation

Mobile App

Look & Feel

As independent investors, we spend a lot of time on the online broker’s website.  We need to like the layout, the color scheme, the readability, button placement, and size of font among other things can assist us as we learn to become independent investors.  You may have other look & feel items that are important to you so be aware of those things and evaluate how well, or not so well, each broker meets your needs and wants.

Accessibility & Navigation

One thing that frustrates me is knowing what I want to do but not be able to find it on the site.  Labelling, titles, pop-up or drop-down menus, button placement and to be able to navigate through the site, find things like statements, research, reports and take advantage of the things the broker offers add to the value the broker can provide or cause severe frustration when they aren’t provided.

Vanguard is one of the largest mutual fund and exchange traded fund providers in the world and many recognize the Vanguard name.  Perhaps you recognize Vanguard.  Well, Vanguard’s website drives me crazy and my frustration level goes through the roof when I try to get anything done on the Vanguard website.  Accessibility & navigation issues are so frustrating for me that I cannot put Vanguard on my Top-5 list at this point.

Mobile App

Each of my Top-5 brokers have a mobile app available for both the iOS and Android operating systems as well as versions for both phones and tablets.  The apps are free to download and you can get a decent feel for the app before opening an account.  Mobile apps provide a nice tool for the independent investor and they are helpful when trying to accomplish various investment tasks when away from home and computer.

A personal caveat on mobile apps and easy access to an account (any account).  The ease and convenience of mobile banking and investing creates an opportunity to satisfy impulsive financial actions and frivolous purchases.  This caveat comes from personal experience.  One of the greatest challenges we face as independent investors is to control our buying habits and patterns to facilitate our investing goals.  As we have in previous posts, our economy in the United States is built on the consumer and we are subjected to massive exposure to “buy and buy now” messages.  The flood of these messages is very difficult to resist which flood is in direct opposition to our desire to invest.  Remember, investing is essentially delayed consumption and our investing activities must be self-created, self-administered, and self-controlled.

Here a few questions that an investor should consider when preparing to open a brokerage account:

Does the broker have the services I need?  (see comparison on www.stockbrokers.com)

Does the broker have educational material that I find useful?

Do I like the reports that can be generated for an account?

Do I like the layout of the site?

Do I like the accessibility and navigation tools on the site?

Is the account opening process completely digital or are there forms that must be printed, completed and faxed or emailed back?

I recognize that some of these questions may be difficult to evaluate and answer until an account is open.  No matter which broker we use, we should be regularly evaluating what our broker has to offer, their costs, and how they compare to other competing brokers.

What You Will Need to Open an Account

All the brokers will need the following types of information to open an account:

Full legal name

Address, city, state & zip code

Email address

Current passport or driver’s license info

Number

date of issue

date of expiration

state of issue for driver’s licenses)

Type of account to be opened

Brokerage

Traditional IRA

Roth IRA

Custodian

Business

Other

Bank account information

Bank name

Bank address, city, state & zip code

Name on the account (this is called registration)

Bank ABA number

Bank account number

Investment objective (what is your goal with the account)

Income, growth, speculation, etc.

Investment horizon (when you will need to draw money out of the account)

1-3 years

3-5 years

5-10 years

>10 years

Investor risk tolerance (how do you tolerate and react to changes in your account value)

Conservative

Moderate

Aggressive

Annual household income

How the account will be funded

Savings/earnings

Sale of an asset

Inheritance

Gift

Etc.

Cost basis of securities

First in, first out

Average cost

Other

Dividend reinvestment

Dividends paid to you can automatically be used to buy more shares of the same stock

Dividends paid to you can be deposited as cash into your account

Opt-in or Opt-out of electronic delivery of documents and communications

After completing the broker’s account opening process, you will receive introductory emails with information regarding your new account and instructions on how to access your account.  Some brokers make access to a new account almost immediately, other brokers may take a day or two.

Once you have an open account you will need to put some money into the account.  You have the option of sending a check (which takes the longest period of time), wire money into the account, or set up and ACH arrangement with your bank.  The ACH option is probably the option of choice for most of us.  Once the bank account information is entered and the bank is setup on the broker’s website then the broker usually makes two small deposits into your bank account which takes 2-3 days (the deposits will then be withdrawn back out after a day or so).  The broker will want you to verify the amounts that were deposited into your account by manually entering the deposit amounts on a verification page.

Once set up, you will be able to transfer money between your brokerage account and your bank account.  Transfers in either direction usually take 2-3 days to complete.  You have transfer options that include single transfers or recurring transfers.

To begin, make a single transfer and fund your new account with the $100 you have saved (or more if you are able).  Once you initiate your transfer the process takes about three (3) days for the money to leave your bank account and arrive in your brokerage account.  When the money has cleared and in your brokerage account you are ready to make your first investment purchase.

This post is now plenty long.  Next we will discuss mutual funds and exchange-traded funds and how they are similar and how they are different and how to decide what you might purchase first.

 

 

And here’s the necessary legal & compliance stuff:

Disclosure & Disclaimer

I am a practicing certified public accountant (CPA) and am licensed in the states of Oregon and Washington and own a CPA firm, CPA Worx LLC, and have practiced for more than 25 years.  I teach accounting at Oregon State University and have taught at the college/university level since 1997. 

I also own a registered investment advisory firm, Peacock Investment Worx LLC.  In the $100 Investor project, I am not offering recommendations of any kind nor am I providing tax, accounting, or legal advice.  I do not receive any type of compensation, of any kind, from the brokers, companies, mutual funds, exchange traded funds, websites, authors, publishers, investment managers, or anything or anyone else that I mention in this project.  True, my clients compensate me for my work and advice.  Many people do not want to invest on their own so I provide my investment services for a fee through Peacock Investment Worx LLC.  But the $100 Investor project is my way of helping anyone and everyone that wishes to invest on their own.  I want to support the independent investor.