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Best Online Brokers for Beginners
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I started managing my own money in a brokerage account almost 10 years ago. I had a little bit of money saved, and I didn’t want to lock it up in a 401(k) until I was 60. I’m glad I did. While many Americans are content to wait until a traditional retirement age to tap investment returns, it doesn’t have to take that long to build up a small fortune with a good strategy and an early start.
But, which online brokers are best for beginners just learning the ropes? I closely analyzed almost a dozen of the most popular brokerage platforms available with an eye towards ease of use, educational tools, and low costs. Some platforms were too sophisticated for newbies and others were just too inaccessible. But three are going to be great starting points for any beginner.
If you are native to mobile and are happy to get educational materials elsewhere, there really is no better platform than Robinhood. But if you want a little more hand-holding and hope to grow into more sophisticated strategies like options, either Fidelity with its best-in-class tools, or TD Ameritrade with its personal-level of guidance, are also going to be great choices for any beginner trader.
The Simple Dollar’s Top Picks for the Best Online Brokers for Beginners
- Best For Learning How to Trade: TD Ameritrade
- Lowest Fees: Robinhood
- Best Broker Tools for Self-Starters: Fidelity
Finding the Best Online Broker for You
The first thing to know about online brokers: They let you put money in and take it right back out as you need it, unlike tax-deferred retirement accounts that have steep penalties if you cash out early.
Another important thing to know is that online brokers provide a huge universe of investments, unlike a 401(k), which may only provide a total of 10 investment options. That can be great if you know what you’re doing, but can be confusing or intimidating if you don’t.
And that leads us to my last point: online brokers certainly aren’t charities, and some will use complexity or hyped-up marketing to justify steep fees for their services. Not only do these charges add up, but they may ultimately lead you to make the wrong investments – doing lasting harm to your bank account as a result.
In short, the blessing and the curse of online brokers is flexibility. And your goal as a beginner is to take advantage of the investments not available to you elsewhere without racking up fees or making complex trades that erase your hard-earned savings.
Here’s what to look for in an online broker if you’re just getting started:
- More Than Just Funds: Lots of brokers tout benefits like $0 transactions for certain mutual funds and ETFs. But if you’re just buying and holding index funds for decades, why not just stick with a 401(k)?
- Easy to Learn: Beyond making it easy to book your first trade, a good broker has plenty of resources to help you use sophisticated tools and strategies over time.
- No Pressure: Some brokers cater to very active traders, demanding a high minimum balance or pushing you towards day trading from the start. Beginners should not be hyperactive, and need to learn the ropes first. Look for a cost structure and platform that won’t pressure you to trade too much.
Admittedly, even with a great online broker it can be intimidating or challenging to invest at times. But unless you have a million dollar trust fund waiting, you have to figure this out.
The risks are real, yes, but so are the rewards. And I’m not just talking about investment returns, but serious finance skills you can use across other areas of your life.
Consider my very first trade about a decade ago: 25 shares of a Russell 2000 index fund with the ticker symbol IWM – a position worth roughly $2,000. I churned in and out of the position as it crashed during the financial crisis of 2008, ultimately locking in a $1,000 loss by selling at a bad time and racking up the trading fees.
Sure, I’d like the $1,000 back… but I still think it was money well-spent in the long run of my financial education. Since then, I’ve been more patient. I’ve been more scrupulous about my fees, and I have a much better understanding of how the market works. Just as importantly, I also realized that my broker wasn’t right for me because it was too aggressive with fees and not helpful enough with its tools – so I switched, and haven’t looked back.
A good online broker like the three listed below can teach you some of the lessons I learned the hard way, and can help keep you from making some of the same mistakes.
The Best Online Brokers for Beginners
The Downside – Higher Fees
It’s worth noting that if you’re just a small-time investor, the fees will take a big chunk out of your nest egg. Consider that if you invest $2,500 in five different stocks with purchases of $500 each, you’ve “lost” 1.4% of your entire portfolio via that $35 in fees; and you’ll lose another $35 when you place orders to sell.
Many beginner investors aren’t eager to make 20 trades a month, though, and most folks don’t bother opening a brokerage account if they only have a few hundred bucks to spend. But the costs are worth noting, and can be viewed in detail here.
The Downside – Light on Investor Education
The downside of the mobile experience on Robinhood is, of course, an inability to provide as deep an experience as you get on larger computer screens, or in traditional browsers. This may make the very first trades you make a bit intimidating, particularly if you don’t have a clear idea just what you’re investing in and why.
That is admittedly a knock against Robinhood worth noting, but it’s not a fatal flaw. There’s a wealth of other great investor education sites out there that can teach you the basics. And to be honest, as you learn the ropes as an investor, you will eventually grow beyond native tools provided by your broker and find other apps, websites, and research that fits with your own trading style.
The Downside – Information Overload
As I said earlier, I was a customer of Fidelity for a long time, and I loved the platform. But I geek out on this stuff and love to test and research ideas for hours before making an actual trade, so those of you with a short attention span may simply be frustrated by all of the tools and information.
If you’re opening an online broker account simply to make a few trades and then buy and hold for years, or even decades at a time, then you probably just want a platform that keeps your fees low and your experience simple.
But if you really want to put in the work yourself to move beyond the kiddie pool and swim with the big fish on Wall Street, Fidelity is the platform for you.