If you are a new or small investor, online investing can seem complicated and even intimidating.
That’s because there are hundreds of online investment platforms, and even different types. Some are true do-it-yourself type investment platforms, while others offer complete investment management.
Which online investing platform should you choose? Let’s start this discussion by covering the basic types of online investing platforms. A little bit later on, we’ll get into some specific online investment brokers that we have reviewed and feel comfortable recommending.
Discount brokers are actually some of the largest online investing platforms available. Some of them hold many hundreds of billions of dollars for millions of individual investors. They provide you with an opportunity to invest in the widest range of assets, including stocks, bonds, mutual funds, exchange traded funds (ETFs), foreign securities, real estate investment trusts, and futures and options.
These can include tools designed to provide basic online investing education, as well as much more sophisticated ones that actually assist you in your investing activities, including high activity trading and options investing.
There is a good bit of variation within the group, and while historically the least expensive platforms have provided the fewest tools, that gap is closing.
Now, it’s mostly a matter of choosing the fee structure that you’re most comfortable with, as well as the most important investing tools.
Examples of discount brokers include E*Trade, TDAmeritrade and Scottrade.
Full Service Brokers
Full-service brokers come at a higher cost than discount brokers, however they essentially manage your investment portfolio for you. They also usually require higher account minimums – typically $50,000 or more – than discount brokers, who often have no minimum account balance at all.
When you turn your portfolio over to a full-service broker, they determine your portfolio allocation, rebalance periodically, and handle all purchases and sales of securities in the process. But because they’re full-service brokers, there is a good deal of customer contact.
You will generally be apprised of the investment process at all times. You are also usually assigned a financial advisor who mostly acts as a point person between you and the full-service broker.
They may design a custom portfolio for you, or they may place your portfolio into a predetermined managed portfolio that is available to other investors. They may also provide wealth management services to clients who have very large portfolios.
Management fees for full-service brokers are at the very high end of the online investment platform range, typically being well in excess of 1% of the value of your portfolio each year.
Full-service brokers usually work best for larger investors who prefer professional management, complete with a generous amount of advisory contact.
Mutual Fund Families
Mutual fund families are companies that manage their own group of mutual funds or ETF’s. They can offer anywhere from a dozen to several hundred funds, covering every conceivable market sector and market index.
Since each fund within the family is effectively its own managed portfolio, it represents an opportunity to have professional investment management.
A major factor to consider with mutual fund families is their fee structure. Mutual funds often come with “loads” (ETFs typically don’t charge these fees), that can range from 1% to 3% of your investment in a particular fund. These fees can have an impact on your investment return, and are not suitable for high activity trading. You should also favor no-load funds in order to improve this situation.
This is the most recent group of online investment brokers, having only come up in about the last seven or eight years. But they offer professional investment management at very low fees.
For the most part, they provide similar services to full-service online investment brokers, but they do so at only a fraction of the cost. Annual fees charged by robo-advisors typically range between 0.25% and 0.50% per year, compared to 1.0% to 1.5% by traditional full-service brokers.
The entire robo-advisor process is fully automated and completely online.
You complete a few questions that determine your investment goals and risk tolerance, and then the investment platform creates a portfolio for you that is based on Modern Portfolio Theory (MPT), which is concerned primarily with proper asset allocation, rather than individual security selection.
They will create your portfolio using a very small number of low-cost, index based ETF’s, that represent the entire broad market. Once the portfolio has been created, they will provide rebalancing and even dividend reinvesting, and some will even provide tax loss harvesting in order to keep your tax liability from capital gains to an absolute minimum.
Examples of robo-advisors include Betterment, Wealthfront and Personal Capital.
Now here are some of what we believe to be the top online investment brokers available:
More from GFC, Below
Best Online Broker for Active Traders: E*TRADE
E*TRADE’s fee structure is right about at the middle of the discount broker range. But they offer a full service platform, that allows you to invest in just about anything you can imagine, including stocks, bonds and more than 8,000 mutual funds and ETF’s. They also offer the benefit that you can either be a complete do-it-yourself trader, or get whatever assistance level that you need to help you in your investing activities.
The platform also provides you with an incredible range of trading tools, including free independent research, streaming real-time quotes, customizable planning tools, and everything that you need to manage do-it-yourself investing.
Top IRA Provider: TD Ameritrade
TD Ameritrade has some superior retirement tools. For example, their IRA Selection tool helps you to determine whether you should make a traditional IRA contribution or a Roth IRA contribution. They also offer a Retirement Calculator tool, that analyzes your information, goals, income, assets and risk tolerance, and then shows you your progress in meeting all of those goals.
They also give you the option to participate either in self-directed investing, or to default to their managed portfolios, Advisor Direct and the Amerivest Portfolios. It’s a good combination if you want a little bit of both kinds of investing – self-directed and broker assisted.
Online Investment Platform With the Top Trading Tools: OptionsHouse
OptionsHouse ranks as the very lowest cost online investing platform, but also provides top-of-the-line trading technology and trading resources. This is especially true if you want to trade options, which is their specialty.
They also offer a feature known as their paperTRADE account, which allows you to practice trading using virtual money, rather than actual cash. That will enable you to hone your trading skills before you actually risk real money.
Lowest Cost Online Investment Platforms: OptionsHouse
At $4.95 per trade, TradeKing offers what are probably the lowest trading fees in the industry. They also offer their managed portfolios, through TradeKing Advisors. Two downsides though: no demo account, and they do charge an annual $50 inactivity fee. But then if you open an account with TradeKing, it’s extremely unlikely that you won’t be an active trader – not with fees that low.
OptionsHouse’s trading fees match those of TradeKing at $4.95 per trade. They have no annual fees whatsoever, and a solid trading platform as indicated in the previous section.
Best Fully Hands-off Online Investment Platform: Betterment
This award goes to Betterment, the heavyweight champion of the robo-advisor world. It’s a very low cost way to obtain professional investment management, and you can open an account with no money whatsoever. It’s a completely hands-off online investing platform, which means that you complete an application, answer a few investment related questions, fund your account, and Betterment handles everything for you from there forever more.
Betterment charges an annual fee equal to just 0.25% of your account balance. That means you can have $10,000 managed for $25 per year, or $100,000 managed for just $250. That includes portfolio selection, rebalancing, and even tax loss harvesting. That’s a lot of management for a very low fee.
Most Creative Online Investment Platform: Motif Investing
If you ever had a fantasy of running your own mutual fund, then Motif Investing maybe just the online investment platform for you. When you invest through Motif, you create mini mutual funds, which are referred to as motifs. You can either invest in existing motifs created by others, or you can create your own.
Some examples of existing motifs include Tablet Takeover, Shale Oil, Rising Interest Rates, and Battling Cancer. If you want to create your own motif, you need at least $300, and then you can invest in as many as 30 different stocks for one low price of $9.95, regardless of the actual amount invested in the motif. It’s an opportunity to mix creativity with your online investing activities.
GFC’s List of Brokers for Online Investing
We’ve prepared a table summarizing some of the most important features of the following online investing platforms:
|Broker/Category||Broker Type||Account Minimum||Annual Fee||Commissions||Best For||Current Promotions|
|Scottrade||Discount||$500||N/A||$7.00||Self-directed investors||$100 – $2,500 cash bonus for new accounts $25,000 to $1 million+|
|Betterment||Robo-advisor||None||0.25%||N/A||Fully managed account||N/A|
|E*TRADE||Discount||$500||N/A||$7.99||Self-directed||$200 – $2,500 cash bonus for new accounts $25,000 to $1 million+|
|TradeStation||Discount||$5,000||$99.95 per month, can be waived with high trading activity||$4.99 per trade, or 1 cent per share||Self-directed, especially options||$500 – $1,500 commission rebates on new accounts 0 to $250,000+|
|Firstrade||Discount||None||N/A||$6.95||Self-directed||$100 – $1,000 in free trading commissions|
|TD Ameritrade||Discount||None||N/A||$9.99||Self-directed||$100 – $600 when you open an account of $25,000 – $250,000|
|OptionsHouse||Discount||None||N/A||$4.95||Self-directed, especially options||$1,000 commission free trades|
|TradeKing||Discount||None||$50 inactivity fee||$4.95||Self-directed||$500 – $1,000 free trades when you open a new account with $500 – $5,000|
|Motif Investing||Custom investment platform||$300||N/A||$9.95 per 30-stock “motif”||Self-directed/Create your own funds||$150 if you open an account with at least $2,000|
|Wealthfront||Robo-advisor||$500||0.25%||N/A||Fully Managed Account||First $10,000 managed free|
|T. Rowe Price||Discount & mutual funds||$2,500||None||$9.95||Self-directed||N/A|