Deciding on a brokerage to manage stock market investments is a personal choice. Though the end goal of most brokerages is the same, they can contain very different features that allow you to manage your investments in very different ways. Let’s review a few features of brokerages before we discuss the best online stock brokerages for you.
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What is a Brokerage?
I have covered brokerages before in my Beginner’s Guide to the Stock Market. However, that post didn’t go very in-depth. Think of brokerages, sometimes referred to as a broker, as the middleman in purchasing investments. When thinking about stocks, brokerages give you access to purchase shares of companies and give you a place to hold/manage those investments over time. This is the core of any brokerage.
All of these brokerages are accessible online, meaning you don’t have to manage your portfolio in person or over the phone. Yeah, that’s how people used to do it. All of these brokers offer website access in addition to an investing app.
How Are They Different?
Where brokerages differ is how they go about allowing you to purchase shares, and what sort of information they give you to work with to make decisions. This can have a massive effect on your ability to respond in a timely manner and with the necessary information to an investment opportunity. It can also give you an edge by more easily presenting pertinent data and making the process of automatic investments more accessible.
Different brokerages also offer different kinds of accounts. For example, some brokerages allow you to open a retirement account such as a 401K or a Roth IRA, while others are strictly for taxable individual accounts. Other brokerages may even be for purchasing investments other than stocks such as real estate and art.
Much of the difference in brokerages comes down to personal preference and your personal situation. The brokerage that allows you to perform your desired tasks, and perform those tasks as frictionlessly as possible, is the best for you. That is why I will only be covering brokerages I have some sort of personal experience with. I don’t want to speak on brokerages I have never used myself.
Purchasing Partial Shares
When it comes to the stock market, brokerages are enabling you to purchase shares of a company. In the past, brokerages limited you to whole shares of companies. This may sound minor until you realize it can be upwards of $300 to purchase a single share of some companies. When you are just starting out and don’t have much money to throw around, this limits your options as to which companies you can own. Nowadays, it is standard to offer to purchase of partial shares. That way, you can purchase $1 worth of a $300 share. This also makes it easier to dollar cost average by purchasing a set amount of a given stock on a set interval.
Dividend Reinvestment
Accessibility to dividend reinvestment is also a cornerstone of modern brokerages. When companies pay you a dividend, generally, the best thing to do with that dividend is to reinvest it back into that same company. Alternatively, these dividends can be placed in the cash portion of your account for you to use/withdraw as you see fit. Dividend reinvestment is a fantastic hands-off approach to building your positions over time.
For me personally, the lack of support for fractional shares or dividend reinvestment is a dealbreaker. However, most brokerages offer these as standard now.
Stock Data
I will mention below whether different brokerages offer a lot of data on the stocks they offer. It can be very useful to have data at your fingertips in your broker. However, stock data can be easily found outside of brokerages. Places such as Google Finance, Yahoo Finance, and quickfs.net offer a lot of stock data for free.
I cover how you can use stock data to make more educated stock decisions in this post. Trust me, it isn’t as complicated as you think.
Commission-Free Trading
Similar to how partial shares went from a rarity to a standard, trades used to cost a commission. Mind-boggling I know. Prior to Robinhood coming out, paying the broker a commission on each trade was the norm. Now, since Robinhood pushed this as their primary offering, most brokerages do not charge any commissions when trading standard stocks. Trading futures, options, or other advanced contracts may result in a fee, but that doesn’t apply to standard trades.
All of the below brokerages offer commission-free trading.
Best Online Stock Brokerages
Robinhood is a brokerage that I use personally. They are sort of a new kid on the block, and prioritize a streamlined user interface over a smattering of data. If your goal is to be a quantitative investor focused on data, Robinhood is not the best for you. Conversely, if you want to begin investing in the stock market and don’t want to jump through hoops to start having your money work for you, I would highly recommend it.
Robinhood only supports taxable accounts and makes automated investing very simple. This is a big plus for dollar cost averaging along with the fractional shares down to as little as $1.
Another huge plus to me personally that may seem minor up front is viewing portfolio performance over time. Robinhood is the only brokerage on this list that calculates your portfolio’s performance WITHOUT including deposits. Imagine you have a portfolio of $100, and one day you deposit another $100. All other brokerages show your portfolio as having increased by 100% in one day. This is incredibly misleading, as your actual stock picks may have stayed the same or even decreased. Alternatively, Robinhood simply adjusts for the new deposit and would show your actual performance over time solely based on the performance of your stock picks.
Robinhood also offers crypto trades if that is something you’re interested in. Though I own some Ethereum and Bitcoin, I am by no means an expert on the crypto landscape.
Robinhood recently skyrocketed in popularity due to its user-friendly investing app.
Do your research on different brokerages (as you are now). But if you decide to go with Robinhood, use my link to get a portion of a free stock upon opening your account.
Prior to Robinhood, I was using TD Ameritrade. If you skipped out on Robinhood because you were more interested in raw data, TD Ameritrade is the place to be. Their primary service, TD Ameritrade, is a decently user-friendly brokerage with nice features. However, the real benefit comes from their service called Thinkorswim. Thinkorswim is a platform of TD Ameritrade that allows for a wealth of data on each company. Complete with charts containing dozens of tracked metrics over time, the ability to place markers at prices and times to track resistance and support points, and more data than you can shake a stick at. Just look at this.
TD Ameritrade also offers recurring investments, albeit not in as streamlined of a manner as Robinhood. However, in reality, once it’s set up you won’t have to mess with it very often. They also have very easy dividend reinvestment programs.
The biggest downside and my personal reason for leaving is the lack of fractional shares. As I said before, this greatly limits your options and makes it harder to balance your portfolio. If you have $100 to invest and you want to own a company whose share price is $75, well that will automatically take up 75% of your portfolio. Though this is an extreme example, it is genuinely difficult to balance your portfolio when purchasing a single share can increase your equity in that company by hundreds of dollars.
I personally use Fidelity for my Roth IRA. They have a solid user interface allowing for fractional shares, recurring investments, and dividend reinvestment. Sadly, they lack the amount of data provided by Thinkorswim, while not being quite as user-friendly as Robinhood. The main upside of Fidelity is the support for retirement accounts in addition to taxable accounts.
One big bonus to supporting a variety of accounts in one place is managing multiple accounts in one app/website. This can make the process of learning to invest a lot easier as you don’t have to learn multiple interfaces for your different accounts. In addition, you only have to link your bank account and verify your identity once.
Fidelity also offers their “stocks by the slice”, which is just another term for partial shares. If for some reason Robinhood doesn’t appeal to you, Fidelity is a great second option. Not much more to say here.
Charles Schwab, as you can probably tell by the name, has been around for quite a long time. I personally have my 401K through them as this is the broker I am limited to through my employer. They have a decent interface and recurring investment options, in addition to partial shares and dividend reinvestments.
I find that Charles Schwab has very similar features to Fidelity, meaning it doesn’t excel at anything. It doesn’t have a super sleek interface or a great wealth of stock data. Nothing to write home about here. If I had the choice between Fidelity and Schwab, I would go with Fidelity due to its slightly better user interface.
Edward Jones is the outlier in this list. Edward Jones is a brokerage the same as the above, but it utilizes an advisor to actually complete the trades and such. In all of the previous brokers, you are given access to the market and whatever data they provide, and you make your own decision from there about what stocks to trade. At Edward Jones, you pay an advisor a small fee, tell them the goals of your portfolio, and they manage it for you. If you are looking for a hands-off approach to stock market investing, you can’t beat Edward Jones.
I previously had a custodial account with Edward Jones. I left because after learning about the market, I realized that I could manage it myself for cheaper. See Edward Jones charges a percentage fee based on your portfolio size, on top of a commission for each trade. In my experience, it is easy to not notice these fees piling up over time. When you aren’t the one doing the trading, you don’t notice when you pay a 1% commission on a trade or when you pay the broker 1% of your portfolio’s equity each year.
A 1% fee may not sound like a deal breaker, but if your portfolio grows 7% in a year which is realistic, you just lost ~14% of your profits. After tracking my custodial account for a couple of years, I could see that my account would simply track the market. I could track the market myself by throwing the entire portfolio in VOO and calling it a day!
Another downside, and a reason I left, was the lack of control. Now, for some people, this may be worth it. Paying a few your profits to not have to actively manage your own stock market investments. However, if you are reading this, I am gonna guess you want to manage your own portfolio in one way or another.
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