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…

I started my Roth IRA a little over a year and a half ago. Everyone talks about what a great thing the Roth IRA is so I thought I’d share what it took to get one up and going.

First of all, you can set up an IRA at pretty much an brokerage firm or even bank. I looked at all my different options which included Sharebuilder, Scottrade, Etrade, TD Ameritrade or Charles Schwab. Each one has different rules and fees. I chose to set mine up with Scottrade because each transaction costs just $7. I don’t have to execute a certain number of trades in order to qualify for a lower transaction fee.

To set up the account, I went to Scottrade’s website and applied for the account. You have to fill out the application with your information and specify that you want the account to be either a traditional or Roth IRA. If I remember correctly, you may have to print out a form, sign it, and mail it in with a check to open the account.

Another reason I chose Scottrade was because I could make online transfers into the account. Unfortunately they had some issues a while back and took that feature away. They’ve since re-instituted the online transfer for regular accounts, but I’m still waiting to have the feature back for my IRA. Until then, I just write checks to the account.

With Scottrade (and I assume the other online brokerages) you’re able to pick from hundreds of different mutual funds, index funds, ETF’s and individual stocks and bonds. I choose to buy individual stocks, but the options are open for you to decide what’s right for you.

Hopefully this has been helpful for you. There is so much written about the benefits and reasons to have a Roth IRA, but some are still a little hazy as to how exactly to go about setting one up.

Let me know if you have any questions. I’d be happy to help you out. Comments are also welcome.