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Investing

Full-Service vs. Discount Brokers: How They Differ

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Investing your money for the future is essential, and for many people, one of the best ways to get started is to find a broker. Brokers are people or companies that serve as intermediaries to buy assets for you. Since you can’t easily buy mutual funds, bonds or shares of stocks on your own from the companies that issue them, your broker is the one that puts through the transaction, which is typically called a trade.

So how do you find a broker who can facilitate your investments? The first step is to decide what kind of broker you want. There are two main types of brokers — full-service and discount — and the services they offer, along with the fees they charge, are very different.

To help you decide which is right for you, check out this simple guide comparing full-service and discount brokers.

What to look for in a broker

When you’re deciding what broker to use to purchase and sell investments on your behalf, there are a few key factors that you’ll need to compare.

  • The costs of trades: Brokers typically charge you a fee when you buy assets and a fee when you sell assets. This fee could be per trade — for example, you might pay a flat fee of $4.95 whether you buy 100 shares or 1,000 shares of a stock. Alternatively, you could pay a per share price — for example, you may pay $0.0044 per share of stock you trade. Be sure to look at fees for the types of assets you’ll be buying, as brokers often charge different amounts for trading stocks than they do to trade mutual funds or options.
  • The advisory fees: Some brokers provide you with advice on investments. There’s almost always a fee for this, and the costs can be quite substantial.
  • The types of investments available: Brokers facilitate different kinds of asset purchases. Most brokers allow you to buy stocks, ETFs and mutual funds. Some also allow you to buy options, futures, cryptocurrencies, bonds, CDs and other types of assets.
  • Minimum balance requirements: Many brokers require that you deposit a certain minimum amount of money to invest with them. While many discount brokers have low or no minimums, full-service brokers usually require a substantial deposit. For example, JPMorgan Chase requires a $50,000 minimum deposit for equity accounts in its advisory program. Some also require you maintain a certain minimum balance to continue investing or to avoid additional fees.
  • Access to customer service: You’ll want to find out if your broker is available to speak to, whether there’s an added cost for speaking to them, the types of customer service or financial advice the broker can provide, and the hours when you can connect with customer support.

By considering all of these factors, you can ideally find a broker that is affordable and provides you with the type of service and support you’re looking for.

How a full-service broker works

Full-service (or traditional) brokers do more than just facilitate investments you decide to make. When you invest with a full-service broker, the broker provides investment advice based on research the broker or brokerage firm provides.

Full-service brokers generally charge advisory fees as well as higher commissions when assets are bought and sold. In some cases, you may grant your broker discretionary authority over your account, which would mean the broker could buy and sell assets without checking in with you first — essentially having control over what you invest in.

While it can be convenient to have an investment professional managing your money and helping you decide what to invest in, this comes at a cost. The standard commission for full-service brokers is generally around 1% and 2% of the assets the broker is managing for you. Brokers may also be paid additional commissions on top of the management fee when certain assets are bought or sold.

These fees can be quite substantial and eat into the profits you make. But if you have a lot of money to invest, don’t want to be bothered with managing money on your own, and can find a broker with a good track record of helping clients earn good returns on their investments, a full-service broker may be a good option for you.

How a discount broker works

Discount brokers typically charge lower fees and lower commissions. But when using a discount broker, you are more likely to have to research investments on your own and manage your own money.

Many discount brokers are little more than online order fulfillment centers. This means you go online, use an automated form to specify what assets you want to buy or sell, and the brokerage firm executes the order for you. Often, this costs less than $7 per trade.

Discount brokers may offer education and research materials, but you won’t typically have an advisor assigned to make recommendations for you based on your needs or review the choices you make.

Because most discount brokers don’t perform investment research or provide hands-on advice, there’s often no advisory fee to pay for using a discount broker. And since you input your orders yourself, commissions on buying and selling assets are much lower than full-service brokers.

While you’ll need to be more hands-on with a discount broker, online discount brokerage firms are convenient and simple to use for most investors. Plus, you could always choose to buy ETFs or mutual funds through these discount brokers, which makes building a diversified portfolio easier than trying to invest in individual stocks of companies.

Since discount brokers are so affordable and easy, they have become very popular — especially for investors who don’t have a fortune to invest and don’t want to pay high fees for professional advice.

Is a full-service or discount broker right for you?

Ultimately, you’ll need to make the decision yourself whether a discount or full-service broker is the best choice. If you have enough money to justify paying higher fees for a full-service broker and you don’t want to be bothered with doing your investment research, a full-service broker may be the right choice. But if you’d rather keep more of your gains instead of paying big fees to a broker, a discount broker is likely the better option to meet your needs.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Christy Rakoczy
Christy Rakoczy |

Christy Rakoczy is a writer at MagnifyMoney. You can email Christy here

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Investing

Smart Ways to Invest $1,000

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

woman wearing a hat holding money like a fan
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You have $1,000 and need to figure out what to do with it. Whether it came from a tax refund, a bonus at work or your hard-earned savings, a wise investment strategy could turn that cool grand into a boon for your financial life.

Unfortunately, there isn’t one right answer when it comes to deciding where the money should go. That’s because it depends on where you’re starting from. “Your financial situation will be critical in determining the best way to invest $1,000,” said Rick Vazza, chartered financial analyst (CFA), certified financial planner (CFP) and president of Driven Wealth Management.

To help you decide which investment is best for you, check out these four options.

How to invest $1,000: 4 savvy strategies

1. Knock out costly debt

Do you owe money on your credit cards or other high-interest debt? If so, an important investment is getting that debt paid down.

“Paying off high-interest credit card debt should be your top priority on the road to financial independence,” advised Robert R. Johnson, Ph.D., CFA, chartered alternative investment analyst (CAIA) and professor at Creighton University’s Heider College of Business. “Credit card debt can be debilitating and can prevent you from improving your financial position.”

When you pay off debt, it’s like you get a guaranteed return on your money since you save on the interest you would have paid if you hadn’t paid off the debt early. For example, if you pay off a loan with a 15% interest rate, you’re essentially earning 15% back since you no longer have to pay interest. The higher the interest rate on your debt, the better the return on the investment you make.

“Most cards charge 20% or more on the balance, while the stock market on average returns 7% to 9%,” said Vazza. “It would be best to use that $1,000 to pay down the credit card debt and save money from the high interest you’d otherwise be paying.”

2. Build up your emergency fund

Another great way to invest $1,000 is to put the money aside to protect yourself when bumps in the road arise.

“If the recent government shutdown has taught us anything, it’s the power of an emergency fund,” said Abby Eisenkraft, an enrolled agent and CEO of Choice Tax Solutions. “Many people don’t think ahead and never fathom that a paycheck will stop, a boiler will break in January, your AC will conk out in August or that emergency out-of-pocket dental treatment needs to happen now.”

Unfortunately, four in 10 adults wouldn’t be able to come up with $400 to cover an unexpected expense, according to the Federal Reserve. If you’re one of them, you could end up in debt when something relatively minor goes wrong.

Investing your $1,000 in an emergency fund could give you the peace of mind that comes with knowing you could handle a disaster. Plus, it could help you avoid paying a ton of interest when disaster strikes since you wouldn’t have to take out expensive loans to cover costs.

3. Max out your retirement accounts

If you already have some cash saved for emergencies and don’t have a ton of high-interest debt, the next best thing to do with your $1,000 may be investing it for your long-term future. And you can do that by putting the funds into a tax-advantaged retirement account.

“Depending on your income, I’d recommend either a traditional or Roth IRA or temporarily bump up your 401(k),” advised Jim White, CFP and founder of J.H. White Financial. “Even if coming into an extra $1,000 is just a one-time event, over time, that $1,000 — if invested into a retirement savings vehicle — will help you meet retirement goals.”

When you put money into a traditional IRA or 401(k), you invest with pretax dollars. This tax savings means saving money actually costs you less.

And thanks to compound interest, it could turn into a big chunk of cash. In fact, $1,000 invested in a 401(k) or IRA today could turn into more than $10,000 if you leave the money invested for 35 years and earn 7% annual returns.

4. Save for something special

There’s no rule that says you need to use your cash right away. In fact, depending upon your situation, you may decide it makes sense to simply save that $1,000 for a bigger purchase, such as a down payment on a home or car.

If you plan on saving the $1,000 and need to access it soon, your best bet may be to put it into a high-yield savings account. That way, your money will be easily accessible, but you’ll earn a better return than you would if you left the cash to languish in your regular bank account.

Which option is right for you?

Ultimately, only you can decide whether to use your $1,000 to pay down debt, build up your emergency fund, prepare for retirement or save for other goals. Whatever you do, make sure you choose wisely so the $1,000 helps you accomplish your objectives.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Christy Rakoczy
Christy Rakoczy |

Christy Rakoczy is a writer at MagnifyMoney. You can email Christy here

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Investing, Reviews

Firstrade Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Firstrade is an online-only broker that offers the ability to trade stocks, ETFs, mutual funds and options at no cost. While its customer service features and trading platform aren’t as robust as some competitor offerings, the commission-free trades and $0 minimum balance make Firstrade a sound choice if you’re looking to invest at rock-bottom prices.

Firstrade also offers a wide variety of accounts, including different types of IRAs as well as joint and individual taxable accounts, Coverdell Education Savings Accounts, and custodial accounts. Plus, you have access to Morningstar stock reports, among other helpful research tools, so you can get the support you need to pick investments.

All of this means that when you invest with Firstrade, you’ll have the flexibility to choose the account you need and invest your money in a wide mix of assets to build a diversified portfolio at a low cost.

Firstrade
Visit FirstradeSecuredon Firstrade’s secure site
The bottom line: Firstrade is an affordable online broker with solid research tools, but some competitors offer more feature-rich trading platforms.

  • $0 minimum deposit requirement
  • No commissions on stocks, options, ETFs and mutual funds
  • Simple trading platform without a lot of bells and whistles
  • Helpful research tools, including access to Morningstar stock reports

Who should consider Firstrade?

If you want to manage your own investments and pay the minimum amount possible to trade securities, Firstrade is an ideal choice.

While many competitors charge $3.95 or more to trade stocks and offer only a limited number of commission-free ETFs or no-load mutual funds, Firstrade charges no commissions on stocks or ETFs. You also can trade mutual funds at no cost as long as you don’t incur a $19.95 short-term redemption fee that’s assessed if you sell the fund less than 90 days after purchase.

Firstrade doesn’t offer a robo-advisor option, however, so you’ll need to be hands-on with your investments. And the trading platform isn’t nearly as feature-rich as some competitor offerings, especially compared to brokers such as TradeStation and TD Ameritrade. If you want the most comprehensive web and mobile apps for trading, you’ll need to look elsewhere.

Firstrade fees and features

Current promotions

Firstrade offers up to $200 in rebates for transfer fees when you switch from a different broker.

Stock trading fees
  • $0 per trade
Account minimum
  • $0
Tradable securities
  • Stocks
  • ETFs
  • Mutual funds
  • Bonds
  • Options
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $75 full account transfer fee
  • $55 partial account transfer fee
  • $0 inactivity fee
Commission-free ETFs offered
Mutual funds (no transaction fee) offered
Offers automated portfolio/robo-advisor
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Coverdell Education Savings Account(ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • SEP IRA
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
  • Guardianship or Conservatorship
Ease of use
Mobile appiOS, Android
Customer supportPhone, 24/7 live support, Chat, Email
Research resources
  • Mutual fund reports

Strengths of Firstrade

  • Firstrade is one of the most affordable choices among online brokers. There’s no minimum deposit required, and you’ll pay no commissions to trade most investments, including stocks, ETFs, mutual funds and options. Competitors typically charge for trades on all but a limited number of commission-free ETFs and no-load mutual funds.
  • Firstrade offers helpful research tools. These include Morningstar stock reports, video commentary from analysts, and a Market Heatmap to provide a broad overview of the market so you can spot trends at a glance. Screening tools also can help you narrow down which investments are best to add to your portfolio.
  • If you incur a fee to transfer funds to Firstrade, you could be eligible for a rebate. Firstrade offers up to $200 in rebates for transfer fees when you switch from another broker and up to $25 in rebates for wire transfer fees when your wire is $25,000 or more. This can help defray the cost of switching from another brokerage firm.

Drawbacks of Firstrade

  • Its customer service isn’t on par with many competitor offerings. Many brokers have local branches — E-Trade offers more than 30 — but Firstrade has none. Plus, Firstrade’s online chat is nowhere near as helpful as the chat options many of its competitors offer. Firstrade provides only automated answers via its online chat, which often aren’t responsive to questions. If you’re looking for answers to specific queries, the online chat simply will provide you with a link to email Firstrade. Competitors such as Ally connect you with a real person via online chat who actually provides answers, even to complicated questions.
  • Its trading platform isn’t as full-featured as competitor platforms. While Firstrade allows you to trade directly from your account dashboard, its trading platform doesn’t provide the same level of control competitors such as TradeStation offer.
  • There’s no robo-advising option. Many competitors offer the option to have your funds managed by a robo-advisor for a small fee. Robo-advising options such as E-Trade’s Core Portfolios and Ally Invest’s Managed Portfolios provide a more hands-off way to diversify your investments.

Is Firstrade safe?

Firstrade is an established investment firm that FINRA’s BrokerCheck confirms is in compliance with regulatory requirements. It also is an SIPC member, which means investors are insured against losses that might occur if Firstrade experiences financial trouble and can’t repay invested funds.

However, when you buy investments in your Firstrade account, including stocks, ETFs and mutual funds, these investments come with inherent risks. You could lose money by investing your assets, and you should understand that investments don’t always perform as expected.

Final thoughts

If you don’t have a ton of money to start investing and are looking for a brokerage with no minimum balance requirements and no fees to buy assets, Firstrade is a solid option. But if you want more advanced trading tools, competitors such as TradeStation may a better choice. If you’d prefer a robo-advisor option, you’ll need to look elsewhere.

Open a Firstrade accountSecured
on Firstrade’s secure website

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Christy Rakoczy
Christy Rakoczy |

Christy Rakoczy is a writer at MagnifyMoney. You can email Christy here

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