If you are an initial investor, think carefully about whether a robo-advisor can better suit your needs than a brokerage account. Robo-advisors use investment algorithms to suggest a portfolio that suits your needs, and then manage the portfolio for you, charging annual service fees.
When you open an account with a robo-advisor, the platform asks you a series of questions about your investment goals, time horizon and risk tolerance. Depending on these factors, a robo-advisor suggests one or more investment portfolios, which usually contain cheap ETFs.
If you feel you need additional investment guidance, a robo-advisor may be a good option. Annual fees for robo-advisors can be 0.25% or more of the value of your portfolio, and you may also have to pay cost ratios for ETFs.
“Robos could be an option for people who know they need to invest but really don’t want to be so involved,” Fait says. If you want to take a more practical role in building your investment portfolio, choose a brokerage account.
Broker account characteristics
Fees are an important factor in choosing a brokerage account, but they are not all. Consider these key features when choosing a brokerage account:
- Technology: How is the company’s website? What is the application like? Scroll around the site and consider downloading the app to see how easy it is to use. “What’s their interface like?” Failla says. “I’m sure they’re all pretty good, so it’s more a matter of preference.”
- Education: What resources does the company offer? Are there any educational articles? Do you want advice – and do they offer it? Do they offer webinars or other guides? If you want to know more about investing, you may want a brokerage house with some “Investment 101” offers.
- Research: If you are a more advanced investor, you may need more research and analysis tools. Some brokerages offer extensive analyst ratings, plus access to independent research and screens to help you choose from the many investment options that exist.
- Familiarity: Do you already have an account there, like yours employer 401 (k)? “Do you have an account in a big company and do you like that platform?” Fait says. “With the idea that we want people to be as light and light as possible, if they’re already online at the brokerage house, that might be a good place to start.”
- Ownership fund options: Many larger firms offer their own low or free fees mutual funds and ETFs as investment options. If you have in mind the family of someone’s home fund, that can change. “I usually recommend Fidelity or Vanguard, because I think the fund families that come with them offer all the good choices for passive investment, in terms of index funds or sectoral investments,” says Fait.
- Branch availability: If you just enjoy the online experience, that’s fine. But some people, especially younger investors, may want a firm with branch locations they can visit if they need additional help or insight.