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Part III – Investment Options

Broker Slang

Minimum

Many brokers will require you to invest a minimum amount in order to start investing. Typically, brokers that offer professional advising require higher minimums.

Withdrawal

Once you make money investing you want to make sure you have easy access to it. You want to look for a broker that will allow you to easily withdraw your investments.

Order

This refers to the action of asking to buy/sell an asset through your broker at a determined price.

Fees

Brokers need to make money somehow and they have two main ways to do so: trading and management fees.

Trading Fee

This is typically a fee per order. Every time you place an order you will get charge a fee for that service (make sure your broker charges a flat fee and does not have additional charges).

Management Fee

Brokers have different names for it but it essentially refers to a fee calculated as a % of your overall investment per year used to cover the administrative, management and overall expenses of the broker. We personally recommend looking for brokers with management fees below 1% and definitely not higher than 2%.

Trading Frequency (Buy-and-hold vs. Active Trading)

Since most brokers charge you for every trade you make you want to make sure that you consider your trading strategy when choosing a broker specially if you plan to actively manage your portfolio because those fees add up and take away from your return on investment.

Expense Ratio

This refers to how much your broker charges you in administrative fees as a percentage of your total investment (typically per year).

Types of Brokers

Brokers come in all sizes and flavors but most of them can be categorized as discount or full-service brokers.

Discount Brokers

Discount Brokers allow you to execute everything you need on their online platforms but provide you little to no investment advice. In exchange they charge lower fees, which make them the best choice for beginners. They still offer investment research reports and tools.

Full Service Brokers

Full-service brokers tend to offer more personalized services, 1-1 investing advice and financial planning tools for saving, retirement, etc. However, they tend to charge higher fees for these service and the minimum amount to open one of this accounts tends to be higher.

Robo-advisor

Unlike brokers that allow you to conduct trading with or without professional help, robo-advisors are wealth management services that manage your portfolio and provide you with financial advice through an online platform without the help of a human advisor. They tend to charge lowers fees thanks the high level of automation involved.

Level of Control/Involvement

Based on the level of control and involvement that you want to have over your investment you have three main options

Low Level

If you want to set up your investment and forget about it (don’t!) you should consider an automated financial investment solution (a.k.a. robo-advisors). This is a great option for beginners.

Mid Level

If you want to invest in specific assets and/or you want the ability to modify your portfolio on the fly you might want to open an online brokerage account and acquire shares of an ETF or another diversified investment product that tracks a vast pool of assets. This option gives you more control over your portfolio without having to constantly monitor a group of assets.

High Level

If you want to personally pick every element of your portfolio and tweak it your way then you should consider opening a brokerage account an individually pick the stocks, bonds and other assets that will make up your portfolio.

Professional financial advisors are also a great resource in this case since they can provide advice on specific investment products that you might not be aware of. However, these professionals tend to require very high minimums and their management fees tend to be higher than automated services. This option is great for more experienced investors.

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