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Full-Service vs. Discount Brokers: How They Differ

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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.

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When Should You Stop Contributing to Your 401(k) Plan?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Saving for retirement should always be one of your core financial goals, but there are times when you may need to stop contributing to your 401(k) retirement plan. Unexpected personal expenses can disrupt your budget, and too much credit card spending can push your debt balance into the red — at times like these, you might consider pausing contributions to your 401(k). There are other instances as well. Read on, and we’ll review them all.

When your employer doesn’t offer matching 401(k) contributions

One of the biggest benefits offered by the 401(k) is matching contributions. With matching contributions, your employer matches the money you deposit in your 401(k) dollar-for-dollar, up to a certain threshold. This helps turbocharge your retirement savings at no extra cost to you.

However, not all employers offer matching contributions. You can still contribute to your 401(k) even if your employer doesn’t offer a match, but a lack of matching contributions might make you consider other retirement savings options, such as an individual retirement account (IRA), depending on your savings goals.

When your 401(k) fees are too high

If your employer doesn’t offer matching contributions, a good way to gauge whether the 401(k) plan is a good choice for your retirement savings is to look at the fees. If the fees charged by your employer’s 401(k) plan are higher than you like, consider other retirement savings options.

Fees charged by 401(k) plans fall into three broad categories: investment fees, 12b-1 fees and administrative fees.

  • Investment fees: These fees cover the cost of managing the investments and are disclosed in mutual fund or ETF prospectuses. Some funds charge a load fee, which is an industry term for a sales charge or commission. This can be charged up front, in which case it is called a front-end load. Or, it may be paid when the shares are sold, known as a back-end load or redemption fee.
  • 12b-1 fees: This is a type of investment fee, named after the Securities and Exchange Commission (SEC) rule requiring its disclosure. This fee covers a mutual fund’s marketing and distribution costs, and broker commissions. Some mutual funds charge a 12b-1 fee in place of a load fee.
  • Administrative and service fees: Typically charged as flat fees, these cover the costs of administering the plan, or special add-on costs for 401(k) loans or hardship withdrawals. Administrative fees run to a few hundred dollars per participant, per year. They may not always be disclosed.

Total fees charged on your 401(k) can range from 10 basis points to 2% to 3%. You pay the plan administrator these fees out of your investment balance, and while a few percentage points a year may not sound like much, these fees add up over the life of your 401(k).

Imagine a 29-year-old investor who contributes $19,500 per year to her company’s 401(k) and plans to retire at age 65. Her current 401(k) balance is $100,000, and fees are 3%. Just by switching to a plan that cuts fees in half, to 1.5%, she could save $845,569 by the time she retires. Instead of having $1.9 million upon retirement, she could have more than $2.7 million.

Check out the fee calculator we used to find out just how much your fees are costing you
Remember, even if your 401(k) has high fees, an employer match is still worth considering. Many times, the match will more than cover the fees.

When you have too much debt

While it’s always possible to both pay down debt and make 401(k) contributions, large debt loads charging high interest rates may require more budgetary attention. Very high APRs from your credit card issuers or a debt-to-income ratio that’s too high may mean you should prioritize paying off debt ahead of saving for retirement.

The key thing to consider is how much you’re paying in interest on your debt compared to the returns you’re getting on your investments. If you’re paying an APR of 15% to 20% to a credit card company but you’re only seeing an annual return of 5% to 8% on your 401(k) investments, you may be losing money. That said, pausing contributions to accelerate your debt payoff means you’ll need to play catch-up on your retirement savings later.

When your expenses are too high

Sometimes life gets in the way of your financial goals, especially when emergency spending disrupts your budget. We always advise our readers to build a healthy emergency fund to be prepared for large, unexpected costs or major medical emergencies, but if your fund is low or non-existent, it might be time to hit pause on your 401(k) contributions.

Think hard about expenses that are high enough to make you consider pausing your 401(k) contributions. Can you meet them by cutting out other spending, or refining your budget? Our rule of thumb for when to dip into your emergency fund holds good here as well: Ask yourself whether the expenses are unplanned and uncontrollable. Only true emergencies that are both unplanned and uncontrollable should require you to stop contributing to your 401(k).

When you retire from your job

The ultimate end point to your 401(k) contributions is when you stop working. Remember, 401(k) plans are sponsored by your employer, so when you retire and stop working, your days of making contributions to your 401(k) plan are over. However, this may not be the end of your retirement savings journey.

What happens when you stop contributing to your 401(k)?

Halting 401(k) contributions might be financially necessary, but you should keep in mind what you’re giving up in exchange.

  • You stop reducing your taxable income. Your 401(k) contributions are made with pre-tax dollars from your salary, lowering your taxable income. This can either bump up your refund or lessen what you owe. If you aren’t making contributions, you don’t have the opportunity to reduce your taxable income. This might mean your tax return won’t be as high next year or you could end up owing money.
  • You could miss out on employer 401(k) matching contributions. If your employer makes matching 401(k) contributions, you’re missing out on the extra 401(k) pay bump. Regardless of how much or little your employer contributes, you won’t get to take advantage of the free money from matching contributions.

Keep saving when you stop contributing to your 401(k)

If you stop contributing to your 401(k), that doesn’t mean you should stop saving altogether. Keep saving in these other accounts if you have the money to spare:

  • High-yield savings account: If you want to put money away but still have access to it right away, try a high-yield savings account. APYs for these types of accounts are much higher compared to regular savings accounts: sometimes as high as 2.00% versus 0.10%, respectively. This type of account is good for building up an emergency fund or other types of savings that you can immediately tap into.
  • Certificate of deposit (CD): If you have the chance to allow savings to grow for a set amount of time, try a CD. You’ll deposit your funds into an account but won’t have access to it for a set term — sometimes six months, sometimes two years. In that time, you could earn a higher yield compared to a regular savings account or high-yield savings account, depending on the amount you deposit and where you make your deposit.
  • Taxable investment account: If you want to try out investing and have some extra cash to do so, try an investment account. A brokerage is good for hands-on investors, while a robo-advisor is a good fit for hands-off investors or those who don’t have the time or knowledge to buy individual securities.
  • Individual retirement account (IRA): Whether you go the traditional or Roth IRA route, you can put money away into a personal retirement account that isn’t tied to your job. While the contribution limit for IRAs is lower than it is for 401(k)s, you can still put money away for retirement without using your employer-sponsored plan. This is also a good idea if you eventually leave your job (or lose your job) and need to transfer funds from your 401(k) into an IRA.

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.

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Large-Cap vs. Small-Cap Stocks: What’s Your Risk Appetite?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Investing professionals use the terms large-cap stock and small-cap stock to refer to larger and smaller companies. The “cap” in both terms refers to market capitalization, or the total market value of a firm’s shares.

Market capitalization is calculated by multiplying the number of a firm’s shares by the price of the shares. When comparing small-cap and large-cap stocks, it’s important to understand that they differ on more than just size or market cap — they also offer different levels of risks and returns.

What are small-cap stocks?

Small-cap stocks are generally considered to be shares of companies with a market capitalization between $300 million and $2 billion. Strict definitions aside, some people stretch that range to include companies with larger market capitalizations.

“Some will say, ‘We consider anything up to $5 billion to be a small cap,’” said Kashif Ahmed, a certified financial planner in Bedford, Mass. “But most people will tell you it’s generally $2 billion or less.”

Many small-cap stocks are penny stocks, meaning their shares are priced under $5. These smaller companies ostensibly have more room to grow, giving shareholders the opportunity to realize substantial gains on these investments. Conversely, they can lose value very quickly, and small-cap stock volatility reflects this dichotomy. As a result, small-cap penny stocks are considered highly risky investments.

When he’s trying to explain small-cap stocks to a client, certified financial planner Michael Yoder will often show them a list of the top 25 holdings in a small-cap index and ask them how many names they recognize. “The two that get recognized the most are DocuSign and Fair Isaac,” said Yoder, who works in Walnut Creek, Calif.

Small-cap stocks are more volatile

Since small-cap stocks are shares of smaller companies, their stock prices tend to swing more widely. The Russell 2000 — an index that tracks 2,000 small-cap stocks — has proven to be significantly more volatile than the S&P 500, which tracks 500 large-cap companies.

“Over the last 10 years, small caps have been 42% riskier,” Yoder said. “To be specific, ETFs that track the Russell 2000 index have been 42% more volatile over the past 10 years than ETFs that track the S&P 500.”

Although small caps are a chancier venture, there’s also the potential for great performance. Small caps have historically outperformed large-cap stocks. There’s greater room for growth and opportunities to get in on the ground floor, so to speak, at a company that soars in later years.

And not all small-cap companies are startup companies taking risky bets. A small-cap company could just as easily be a company that makes light bulbs. “And everybody needs to buy light bulbs,” Ahmed said.

Small-cap stock features

  • Market capitalization of $300 million to $2 billion
  • Stocks are more volatile
  • Outperform large-cap stocks over the long term
  • Tend toward more aggressive growth strategies
  • Smaller percentage of them pay dividends

What are large-cap stocks?

Most people define large-cap stocks as shares of companies with a market capitalization of $10 billion or more. Large-cap stocks are shares of companies you’ve probably heard of: Apple, Exxon, Google and Coca-Cola are all large-cap companies.

Are large-cap stocks high-risk? Not generally. These companies tend to be established and well-known, although they’re not all decades-old behemoths. “Tesla is a relatively new company, but it has a gigantic market capitalization,” Ahmed said. “Whereas Ford and General Motors and Chrysler have been around forever, and their market cap combined is less than Tesla’s.”

Large-cap stocks: Less volatility, lower growth potential

Although they’re less volatile, large-cap companies are typically slower-growing. Consider that of the biggest companies at the beginning of 2000, only three out of 10 have grown, seven of the 10 are smaller and only Microsoft is still in the top 10.

“People see these big companies as unsinkable ships,” Yoder said. “Twenty years ago, people would’ve said, ‘What could possibly happen to General Electric?’ Now it’s a quarter of the size it was two decades ago.”

So while you may think that putting all your money in today’s large-cap companies is a solid investing strategy, it could backfire. “Trees don’t grow to the sky,” Yoder said. “The reason small caps sometimes outperform is they simply have more room to grow.”

Large-cap stocks pay dividends

There is one thing large-cap companies have over small-cap companies: payment of dividends. While fewer than four in 10 small-cap companies pay dividends, large-cap companies are often established enough to pay dividends out of revenues.

“Large companies that pay dividends tend to do better and are less volatile in times that there’s a lot of volatility because of geopolitical things that may be happening,” said Ron Palastro, a certified financial planner in Brooklyn, N.Y. “That would be another thing to take into consideration.”

Large-cap stock features

  • Market capitalization of $10 billion or more
  • Tend to be established, well-known companies
  • Stocks are less volatile
  • Growth tends to be slower overall
  • More likely to pay dividends than small-cap stocks

Large-cap vs. small-cap stocks: What’s the difference?

The primary difference between large-cap and small-cap stocks is size: Large-cap stocks are shares of companies with a large market capitalization, and small-cap stocks are shares of companies with a small market capitalization. Note that there are also mid-cap stocks with a market capitalization in the middle.

But there are also differences when it comes to company growth, volatility and other factors. Here’s how it breaks down:


Small-cap stocks

Large-cap stocks

Market capitalization

$300 million to $2 billion

$10 billion or more

Company age

Typically younger

More established


Often pursuing aggressive growth

Tend to grow more slowly


Higher-risk investment with higher volatility

Lower-risk investment with lower volatility


Less likely to offer dividends

More likely to offer dividends

Small-cap vs. large-cap: Historical stock performance

In general, small-cap stocks are considered riskier and large-cap stocks are considered safer investments. But their performances over time depend on when you’re measuring. Over the long haul, for instance, small caps have historically produced greater returns. Since the stock market’s inception, small stocks have beaten large stocks by 4% annually, on average.

As mentioned, small-cap performance can be volatile in the short term. In the year ending December 2018, a small-cap portfolio would have lost more than 11%, compared to a large-cap portfolio’s 4.76% loss. Over the previous 20 years, however, small-cap versus large-cap returned 8.91% versus 5.97%, respectively. And since 1926, a small-cap portfolio would have returned 11.65% to a large-cap portfolio’s 9.83%.

That doesn’t mean large-cap stocks can’t deliver. “Over the last 10 years, large-cap stocks have rather significantly outperformed small caps, by a pretty wide margin,” Yoder said. “And from 1984 to 1999, large caps beat small caps by an average of 5% a year.”

Here’s how the Russell 2000 and the S&P 500 have compared since 1979:

Large-cap vs. small-cap stocks: How much risk do you want?

Investing in large-cap versus small-cap stocks depends somewhat on your appetite for risk and your time horizon. Small-cap stocks are a riskier investment, but if you’ve got decades until retirement, you’ve got time to weather some market swings.

“Someone who’s 25 can potentially take on more risk because if they lose more money, they have time to recover from that,” Ahmed said. “But at the same time, not every 25-year-old is wired the same. I have 25-year-olds who are very risk-averse.”

To invest aggressively in small-cap stocks, you must be comfortable with market swings, and you probably don’t want to put a large chunk of your portfolio at risk. “No matter how risky people think they are, they’re actually not,” Ahmed said. “The first time they see parentheses on their statement, they all change their religion very quickly.”

How much of my portfolio should be small-cap?

Planners suggest putting about 5% to 15% of your portfolio toward small-cap stocks. “You need exposure, but you need a little exposure,” Palastro said. “Maybe it’s 5% or 10%, but it’s not 50%. That’s how I try to explain it.”

On the other hand, leaning too heavily on large-cap stocks can also put you in a precarious position. “Most people consider large caps to be safer, which is often true,” Yoder said. “But in the last two recessions, small caps actually held up better than large caps.”

In other words, people with a portfolio full of mostly large-cap stocks lost more money than those with some small caps mixed in, even though it’s the riskier choice.

“Modern portfolio theory says that even if you add a risky asset to an overall portfolio, as long as it doesn’t move in lockstep with everything else in your portfolio, it can decrease overall risk,” Yoder said. “Even our retired clients still have a percentage of their U.S. portfolio invested in small-cap stocks.”

In the end, it’s crucial to have a mix of both small-cap and large-cap in your portfolio — along with a diverse mix of other investments. For best results, experts recommend a foundation of large-cap stocks (perhaps 30% to 40%) along with a mix of small- and mid-cap stocks, international stocks and some bonds.

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.