When it comes to investing, people are easily scared, and for good reason. There are a ton of asset classes where you can look to park your savings and generate stable returns.
However, the space for financial investment can become confusing for the majority of the population. But it can get easier if you choose the right broker.
If you want to achieve profitable returns over a period of time, you need to select a broker that matches your financial goals and requirements.
The process of selecting a broker is even more important for a new investor who is just getting started.
Here, we take a look at some important questions to answer before signing up with a brokerage.
Is the broker reliable?
This is the most important criterion that you should consider when you are screening a broker. You need to make sure that your capital is safe, which means that the broker must be registered with regulated authorities such as FINRA (Financial Industry Regulatory Authority).
In addition, in the United States, financial instruments such as certificates of deposit and MMDAs or money market deposit accounts are guaranteed by the Federal Deposit Insurance Corp.
You should dig deeper into customer reviews using platforms like Investimonials and research terms like fraud protection and customer service before making a decision.
The ideal broker will not only have the required regulatory approvals, but will also protect your investments by providing users with a secure platform with features like two-factor authentication and robust customer service.
Where do you plan to invest?
If you want to invest in the stock market and trade in stocks that are part of your country, you will have a plethora of options.
But over the past few years, investors have had the opportunity to invest in multiple asset classes, including bonds, gold, and even cryptocurrencies.
In addition, you can also buy and sell stocks listed on other international exchanges and diversify your portfolio.
Not all brokers will provide you with the options mentioned above. First you need to understand your investment objective and pre-select brokers based on it.
Are you an active investor or a passive investor?
You can either be an investor who researches and identifies stocks for your personal portfolio, or you can trade passively through ETFs or exchange-traded funds. If you are an active investor, the ideal broker should provide you with the necessary tools that will help you speed up your investment decision.
This means that the broker must provide you with real-time price updates, valuation tools, stock filters, and historical financial information.
Alternatively, for a passive investor, the brokerage should offer the option of investing in multiple passive instruments such as ETFs and mutual funds.
What are your financial goals?
It depends a lot on your financial goals and needs. Do you want to get a constant rate of return and beat the market?
In this case, the broker should allow you to shortlist mutual funds or ETFs that have historically outperformed the broader markets.
Additionally, if you are at high risk and want to trade cryptocurrencies and sophisticated instruments like futures and options, you need to find a broker who provides these services.
Alternatively, if you are nearing retirement and want to have lower risk exposure, a broker with a basket of low income bonds will be the ideal platform.
Are you willing to pay high fees?
Most older brokers will charge investors and traders a commission for using their platform.
While a few brokers may lower trading fees and commissions, they may have high currency conversion costs or high account management fees.
Essentially you need to calculate the costs associated with signing up for a brokerage account in a given year and not just the price per trade.
What services do you want from a broker?
Do you just want a broker who will provide you with a platform to execute your trades and investments or are you looking for a full service broker who will provide you with a full suite of investment advice and management solutions?
While advisory solutions are more expensive, they also provide investors with the information and advice they need to help you achieve your investment goals.
You can take a call depending on the services you require from the broker.
The last takeaway
We can see that choosing a broker comes with its own set of challenges that might confuse the newbie investor. It makes sense to compare the reviews of brokers and examine the products and services they offer.
Most brokerages will have a detailed description of the tools and services they offer. But it’s always advisable to sign up for a free trial (if available) before getting started.