After I wrote about my Roth IRA that I set up with Scottrade, I got some interesting feedback. Some weren’t aware that you could have an IRA with Scottrade. Others talked about how it was better/easier to go with a mutual fund company. In this post I’m going to talk about why I picked an online brokerage and not just a mutual fund company.
First of all, I like the fact that it’s all online, but I also have access to actual branches throughout the country.
Secondly, I have so many different investment options to choose from. I’m not confined only to the mutual funds from a certain company. I’m able to buy mutual funds, CDs, Bonds, Stocks, or ETF’s. I’m actually able to buy mutual funds from the big companies like Vanguard or Fidelity. So I’m quite happy having my account with an online brokerage since I can do exactly the same thing as I could with say Vanguard, plus a whole lot more.
Even though I could buy mutual funds, I don’t really choose to go that route. For one, I don’t like the fees (or loads) that are charged to own them. I also don’t like the fact that I would be giving up control of my investments to a fund manager who I don’t know. I like to have as much control over my own investments as I can. Giving up this control would be, for me, “risky”.
A common investment strategy that is always frequently talked about is diversification. Mutual funds are not the only way to diversify your investments. I would venture to say that most people don’t even know what their mutual funds are invested in. So how do you know that they’re really diversified. I guess you just have to trust them. In fact you end up having to buy multiple mutual funds to actually be diversified among different asset classes.
Instead of researching the performance of different mutual funds, I research the performance of actual companies. By buying stocks this way, I’m also able to diversify because I buy multiple stocks of different sizes in different industries.
I’m also not really after the normal market returns. I’ve never seen a mutual fund double in value in a year or even in a couple years. I have seen certain stocks double in value in less than a year (check out Jack in the Box last year). There’s risk in all investments, but I believe that I can mitigate some of the risk by doing my research.
Picking your own stocks is not for everyone. Not everyone wants to take the time to do it and that’s fine. There’s not one best way to invest. I’m telling you what I prefer. I also want to learn more about the stock market and business, and I figure that there’s no better way than to learn by doing.
Stock investing is actually not what I’m most interested in. I’m most interested in investing in real estate. But more on that later. Let me here what you have to think about all this…
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by Henry @ Binary Dollar, on April 4 2007 @ 8:56 pm
Hey Limeade. People (not me) must be marking your posts as spam and now I have to fish it out any comment you write from Akismet. You might want to not put your URL at the bottom of all your comments.
by Zachary, on April 4 2007 @ 9:08 pm
I’m afraid I don’t have the stomach for individual stocks. ETFs are about my speed.
by savvy saver, on April 5 2007 @ 10:31 am
I’m not understanding what advantages Scottrade has over Fidelity or Vanguard? Both Fidelity and Vanguard are full-service brokerages. Fidelity has brick and mortar branches, and they both have access to HUGE numbers of funds from hundreds, if not thousands, of mutual fund companies. In addition, Fidelity has some funds with no loads, no transaction fees, and expense ratios of less than one-tenth of one percent.
by limeade, on April 5 2007 @ 10:58 am
I’m not really saying that Scottrade is better than the other options out there. I’m not really familiar with a lot of the other brokerages, so I just wrote about my experience briefly. Mostly what I’m aiming at are the reasons that I don’t buy the mutual funds. The low expense ratios are great when you’re starting out with smaller amounts, but when you start to accumulate, the $7 transaction fees are quite tiny.
I appreciate the comments though. I love to hear differing opinions so we can all learn.
-limeade
by Escape Brooklyn, on April 5 2007 @ 1:10 pm
Hmmm, I admire your bravery with buying individual stocks. I don’t have the time or the expertise to manage a stock portfolio and figure the Vanguard folks can do a better job for annual fees of 0.20%.
But I’m also happy with annual returns of 6-10% in a diversified portfolio, since if I take the risk that my money could double in less than a year then there’s also the risk that it all could tank. I was living in the bay area in the late 90s and saw a lot of overzealous people lose everything.
by prlinkbiz, on April 5 2007 @ 4:59 pm
You hit the nail on the head: Control. No matter what you invest in, you should have as much control over your investment as possible. This is why I primarily invest in businesses and real estate- I suppose that makes me a control freak… Good to know I’m not the only one!
by limeade, on April 5 2007 @ 5:34 pm
Glad to hear that you invest in real estate and businesses. That’s also my primary focus; I just haven’t gotten there yet. I do like to have some stocks though in a Roth.
by The Digerati Life, on April 6 2007 @ 1:09 am
If stock picking works for you, then that’s really cool! I have done both mutual fund and stock picking and found my returns with mutual funds over the last decade and a half trounced my stock picks so I decided to stick with the MF for the long term. I haven’t had the time then and now to watch stocks carefully either so I’ve done what worked for me. But yes, if you have the knack with stock picking then stick to what works!
by frugal zeitgeist, on April 6 2007 @ 5:43 am
I’m not comfortable with picking stocks. I don’t feel like I can squeeze enough time out of my day to put as much focus on the analytics as I feel I’d need to make informed decisions. Once I get the mortgage paid off, though, I might revisit that line of thinking.
by Kevin, on April 6 2007 @ 1:53 pm
I also have an investment account (not an IRA) with Firstrade. Inexpensive brokerage firm ($6.95/trade). I did put some money in a mutual fund, just to get some large diversification. After that I picked somewhere in the range of 18-20 stocks — more diversification. I’ve taken some hits on some stocks, but overall everything has been up.
by Fiscal Musings » Blog Archive » Weekend Edition: Back to Work for a Day, on January 25 2008 @ 11:42 pm
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