Even though you can choose your own investments, you still need a stockbroker to put those choices into action. You don't have to listen to what they say, even if it could help. You can choose your own investments, but you will still need their help to put your money to work. Once upon a time, you didn't have a choice about what kind of stockbroker to use. Full-service brokers were the only kind of broker, and they ran the market. They asked for very high commissions for their services, but this was the norm in their field. This added to the idea that the stock market and investing in the stock market were too expensive for most people and only for the very wealthy.
The first time these full-service brokerages lost control of the market was in 1975, when discount brokers came on the scene. They charged a small fraction of what full-service brokers did, so they were very popular on the market. They offered the same great services, but the prices were much lower, making it possible for the average person to afford them. The internet was another great new thing that came along. This was a great idea, and it made trading go more smoothly as a result.
Overall, all the changes to the stock market meant that people now had access to a lot of information that they had never had before. But there is some disagreement about whether these new ways to invest have really made people better investors. The answer is a clear "yes" for people who do their research and look for the truth behind the hype. Investors can now choose the type of broker they want from the many that are out there.
Brokers can be put into four groups. These are the discount/online broker, the discount broker who gives advice, the full-service broker, and the money manager. The discount or online broker's main job is to take orders. They won't tell you when to buy or sell a stock or give you advice. There may be research tools and other account management tools, but it's up to you to decide what to invest in on the stock market.
The next type is the type of discount/online broker that helps customers. They don't give full consultations, but they will have more research than sites that just take orders. They will send out newsletters and give tips on investing, but they probably won't recommend specific stocks. With this option, you won't be completely on your own, but you'll still have to do a lot to choose the best stock to buy.
The full-service broker will give you advice on specific stocks and will also look at your finances to figure out what you need and what kinds of investments you can make. This service is for investors who don't want to or don't have the time to make their own investment decisions.
The money manager is made for people who have a lot of money to invest. This broker will only work with large portfolios. For a certain percentage of the assets under investment, he or she will invest and manage the whole account. This choice can be pricey, but it can pay off in the long run.
No matter which option you choose, make sure it fits your needs and that the Securities Investor Protection Corporation has your back. Ask about backups and other options in case there are technical problems, and make sure your broker is looking out for your best interests.
