Ready to Start Investing? Here’s the Best Online Brokers for Beginners

I can remember the first time I made my first stock trade.

I was an intern at the investment firm that eventually hired me.

It was right around when the tech bubble burst, and tech stocks were trading at extreme discounts.

I didn’t have a lot of money, actually I had really almost no money, yet I felt compelled that I needed to buy one of these tech stocks.

best online brokers for beginning small investors

The stock that I had in my sight was Lucent.

Lucent was a telecommunication company that once was trading in the $60 to $80 range but had significantly dropped well below $10.

If I recall correctly, I bought it within the $6 to $8 range.  I remember thinking that I landed a good buy.  Ha!

I opened my account, deposited my money, and made my first trade.

Reflecting back, I was such a beginner, it wasn’t funny.

If I had known any better,

  1.   I wouldn’t have bought Lucent, and
  2.  I definitely wouldn’t have bought it through a full-service brokerage firm.

At the time the commission on the transaction that I paid was $42, and that was just to buy it. If I sold it, I had to pay an additional $42.

Had I know better, I would have gone with an online brokerage and paid next to nothing to make the exact same trade.

If you are a novice investor or a small investor looking to make your first stock trade, let me introduce you to some other best online brokers for beginners.

Best Online Brokerage Firms for Beginner Investors

Of all these firms have accounts that are easy to set up, have very cheap stock trades, and also have an awesome customer service that makes you feel as if you’re meeting with somebody in real life. We also highlight firms that encourage investor education by offering deep knowledge bases, webinars, or even online courses for their investors.

Betterment

Best Online Brokerage Firms for Beginner Investors If the alphabet soup of investing — Roth IRA, Traditional IRA, SEP IRA, 401k, Roth 401k, and so on — baffles you, Betterment is a great place to start.

Betterment’s philosophy is this: investing is so complicated that many people get analysis paralysis. Instead of making any decision, they freeze and make no decision. Betterment is designed to make investing incredibly simple.

How simple?

You have very few choices to make:

  • how much money to invest
  • how often you want to invest it (one time or set up to automatically be invested on a schedule)
  • what asset allocation you want between stock and bond investments

That’s it. Betterment takes care of the rest. No having to look through a bunch of mutual fund tables to decide which funds to go with. The firm automatically invests in a basket of exchange traded mutual funds in two categories: stocks and Treasury bonds. If you go with the most risk (100% stock allocation), all of your money goes into the stock ETF basket. If you want to split it down the middle, 50% goes to the stock basket and 50% to the Treasury bond basket.

It’s dead simple, which is why it is a great place for beginners to start. Building up the habit of investing regularly is critically important and Betterment helps you do this without overwhelming you with complicated investment decisions.

Open an account with Betterment today and get a $25 bonus for free.

Scottrade

ScottradeScottrade is similar to E*TRADE in that it is offers a multitude of investment choices for investors. Betterment and Capital One ShareBuilder have a place in the world — they are great at helping you get started and building up investments automatically — but discount brokerages like Scottrade give you more options once you know a little bit more about what you’re doing.

Scottrade also offers some of the least expensive trades available: just $7 per trade. They have a no-fee IRA, give you access to 3,100+ no-transaction fee mutual funds, and 14,500+ other (load and no-load) mutual funds. As expected you can trade stocks, ETFs, and options as well.

You can open an account with as little as $500. Scottrade will also pay up to $100 of your account transfer fees if you’re coming from another broker, but you have to transfer $10,000 or more to qualify for that. Nonetheless, Scottrade is one of our favorite brokerage firms overall and is a great place to get started.

Open an account with Scottrade today.

Capital One ShareBuilder

As mentioned, one of the most difficult parts of investing is getting out of your own way and setting up a habit of investing regularly. We all get inspiration to invest occasionally (usually when we get an emotional high from seeing the stock charts going up), but that isn’t an investing strategy that will pay off in the long run. You are much better off setting up an automatic savings plan that allows your brokerage firm to automatically take money from your bank account and put it into designated investments on a set schedule.

That concept is the main methodology behind Capital One ShareBuilder. The firm is even named after the idea: to build up shares in an investment.

How does Capital One ShareBuilder help you do this?

  1. Simply pick your automatic investment schedule
  2. Pick the individual stocks or ETFs you want to invest in (ETFs recommended for diversification reasons)
  3. Ignore until you’re a millionaire

When you invest automatically this way your trade only costs $4. That’s the least expensive brokerage trade cost around. (If you choose to invest irregularly your trade cost goes up to $9.95, so automatic investing is definitely the way to go.)

Get started investing and build up shares over time by opening an account with Capital One ShareBuilder. (Plus get $50 just for opening an account!)

TD Ameritrade

If you’re looking for a solid industry leader that makes investing easy for new investors, TD Ameritrade is a great option. The company has been serving new online investors for years.

Unlike Betterment and Capital One ShareBuilder, TD Ameritrade isn’t designed solely for new investors. You get a set of robust tools whether you are new to investing or have been investing for decades.

As a leader in the industry, TD Ameritrade offers a vast array of investments that are suitable for new and experienced investors alike:

  • 100+ Commission-free ETFs
  • 13,000+ mutual funds
  • Fixed income products like bonds and CDs
  • Trade stocks, options, forex and futures
  • Multitude of account options: Traditional IRA, Roth IRA, SEP IRA, Simple IRA, 401k rollovers, normal taxable investment accounts

One of our favorite things about TD Ameritrade is how they offer exclusive webinars and investing classes to help new investors get up to speed.

Trades cost just $9.99 and if you open an account today you can trade free for 60 days plus get up to $600.

E*TRADE

If you’re looking for an industry leader in the online trading space that can help you learn more about investing, E*TRADE is a great option. The company has 20 years of experience in online trading, affordable trades, and a robust investor education center.

Unlike Betterment and Capital One ShareBuilder, E*TRADE isn’t designed solely for new investors. You get a set of robust tools whether you are new to investing or have been investing for decades.

As a leader in the industry, E*TRADE offers one of the largest inventories of potential investments available:

  • Every ETF sold
  • 8,000+ mutual funds
  • 30,000+ bonds
  • Trade stocks, options, and forex
  • Multitude of account options: Traditional IRA, Roth IRA, 401k rollovers, normal taxable investment accounts

Some other firms have limited mobile or tablet options. I’m sure you’ve seen E*TRADE’s commercials, but the trading tools for mobile devices ranging from iPhone to Android to Blackberry and iPad is quite robust.

Trades cost just $9.95 and if you open an account today you can trade free for 60 days plus get up to $600.

Getting Started with Investing Online

One word of caution in buying stocks when you are just first starting investing is to be careful!  I often discourage young investors to start off buying stocks.   Remember my Lucent stock?   I never made a dime off of it and ended up selling at a loss.

Before you start investing into stocks, I would encourage you do start with mutual funds or an ETF that tracks a larger index – think S&P 500.   That builds your foundation first before you start taking unnecessary risk trading individual stocks.

Just because you’re small investor now doesn’t mean that you need to continue to be a small investor because you keep losing money on crappy stock picks.  :)

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Comments | 9 Responses

  1. says

    I have also heard of OptionsHouse. Have you heard anything or have experience with them? I’m looking to start investing and read on one site that they are very good and have cheap trades. I have since forgotten what site I got that info from so I can’t go back and see what reasons were given other than that.

  2. says

    Great summary Jeff. I went with Sharebuilder because I liked the low cost when you set up automatic investments. I have it set up with monthly purchases with dividends reinvested so it is pretty cool to just watch it grow all on its own.

    • Jeff Rose says

      @ Mike Dividend investing is fun especially if you’ve got a few years under your belt to see how dividends can actually grow your account.

  3. says

    Jeff,

    Great article. I come across quite a few people that cannot necessarily become clients, but need some direction for opening their first Roth IRA or finding a place to park some extra savings and earn some interest (that’s better than a bank!).

    Like most of your posts, this a great plain-English summary of some of the better services out there. I’ve bookmarked this for future use.

    Thanks.

    • Jeff Rose says

      Thanks, Robert. This is why I started to do more of these posts, too. Many young or beginning investors are intimidated in sitting down with a financial advisor. If they can get their feet wet using an inexpensive online broker, at least they are getting started which is more than half the battle.

  4. says

    Thanks for listing my options, Jeff. I am short on cash, so no investing for me until I get my income up. But once I do, Betterment seems like the easiet option to get my feet wet. And thanks for the warning. I always recommend you don’t buy anything you don’t understand, and that goes for investing as well. Taking time to do some basic research on a stock can save thousands in the long run.

    • Jeff Rose says

      @Jacob I thought Betterment had a neat concept when they first came out, but the fees were a bit on the high side. Ever since their price reduction, it’s hard not to recognize what they offer. Even if you did it yourself, what you save is pittance in exchange of constantly monitoring your portfolio and making the appropriate changes.

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