Investing your money is one of the best ways to build your wealth over time. In order to invest however, most investors need to work with a professional intermediary. This is where brokerages come in – they’re there to bridge the gap between investors and the market.
When choosing a broker, one of the first and most important decisions you’ll encounter is whether to choose a full-service or discount broker. Getting a better understanding of your options will be key to successfully choosing the right broker for your goals. Here’s what you need to know:
As their name implies, full-service brokers offer complete investment services. You’re essentially hiring a professional to take control and manage your investment portfolio for you, making decisions on your behalf. Back then, they were the only option available, and each transaction came with a hefty price tag.
Nowadays however, full-service brokers are more affordable, as they usually charge based on how much money you have in your account. In general, they charge between 1% to 2% of the assets managed.
Another important thing you should know about full-service brokers is they require account minimums. If you’re planning to hire a full-service brokerage, you may need to have at least $100,000 to $250,000 worth of assets. Some full-service brokers however, offer services for investors with fewer assets in exchange for a higher fee.
With discount brokers, investors get the opportunity to make decisions on your own. Working with discount brokers give you access to online trading platforms and helpful tools like stock screeners, which gives you comprehensive information that will help you decide on what works best according to your goals.
Discount brokers offer a variety of services. Some provide more advanced investing tools and charge higher fees, while others provide investors with only the basics, while charging lower fees. With a discount broker, investors can either make trades automatically through an online trading platform or get in touch with the broker over the phone (this usually costs more). Most discount brokers charge around $5 to $10 commission fees for every buy or sell order, while there are some who charge annual account fees.
Discount brokers are an excellent option especially for more experienced investors simply because they’re more affordable. Of course, choosing to work with a discount broker isn’t without risk, as you’ll be making trade decisions yourself, without the help of an experienced, professional broker.
Making your decision
When it comes to choosing between a full-service broker and a discount broker, there’s no “perfect” choice, as it will depend on the personal needs, preferences, and goals of every investor. The smart move is to perform a cost-benefit analysis for every broker, taking into account the level of service and features they provide, and how these will figure into your plans and what you want to achieve.
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