When starting out as a new investor there are many questions you may ask yourself. How to get started? How much money should I invest? Do I put it all in one company? What is a diversified portfolio? These are just a few of the important questions you will need to answer before starting your journey into investing into the stock market. Let’s first start with where do I invest my money? Or to rephrase, what trading or investing platform should I use?
There are many factors which will affect your choice of trading platforms to choose from. There are dozens of options available. Having dozens of options to choose from can make the selection process overwhelming, thus preventing you from ever starting. Ever go to a restaurant where there are 50 or more options to choose from on the menu? Then go to another restaurant where there are only 10? With all of the options to choose from it may take you forever to make a selection, or you’ll have to rely on the waiter’s opinion on what is good at the restaurant. Limiting your options reduces anxiety, so thank me later!
To get started I would recommend first assessing:
1) How involved do you want to be?
2) More or less Features
3) Higher or lower costs, and
4) How often you plan to make transactions buying and selling stock.
If you plan on following the Share Repurchase Newsletter portfolio as your only investment strategy, outside of your 401K of course, then selecting a platform with the most features and potentially higher fees may not be the right choice for you. We make 2 transactions per month when selling the 30th company in our portfolio, then adding a new selection for the month. Let’s start by discussing a few free and low cost trading platforms.
Low Cost - Low Feature Trading Platforms
Robinhood is a free stock trading platform which is only available via mobile devices. If you have an iOS (iPhone, iPad, iPod) or Android device, you can use the Robinhood app to buy and sell stock free of charge! There are very few trading platforms available where you are not charged commission for every individual transaction you make on their platform. For those who are just getting started with investing, this may be the best choice for you just to get your feet wet. How does a company stay in business offering services at no costs? Robinhood earns revenue by collecting interest on the cash and securities in Robinhood accounts, the same way you would make interest for money sitting in your savings account. There’s also a paid option within the platform called Robinhood Gold. With Robinhood Gold there’s a $10 Monthly charge, which provides you access to Pre-Market and After Hours trading. The stock market’s normal hours are from 9:30am to 4pm EST. With Pre-Market trading you have access to trade starting at 9am, and After-Market trading ends at 6pm EST instead of 4pm. Why would you want access to Pre or After-Market Trading? Companies announces Quarterly earnings before and after market. After earnings are announced, the price of an individual stock can rise significantly. A good recent example is the price of Nike ($NKE) stock. On June 29th Nike’s earnings were released After Market. At 4pm Nike’s stock price closed to normal trading at $53, and before the Market opened again at 9:30am the next morning, the stock rose to $56. That’s a 5% gain over night, with most of this gain occurring between 4pm and 6pm (After-Market trading hours)! If you’re not an active trader or a day trader, but a long-term investor like the Share Repurchase Newsletter, then none of this will really matter to you. Enjoy the free access in order to make your 1 purchase per month trading from your cell phone, and don’t worry about it for another 30 months.
Loyal 3 is Now FolioFirst
On May 22nd Loyal3 changed to FolioFirst. When Loyal3 began it started as a free trading platform, with the major difference between it and Robinhood being the fact that you can purchase fractional or rather partial shares of stock, as well as access to getting in on IPOs (Intitial Public Offerings). Using Apple ($AAPL) as an example, back in June of 2014 Apple performed a 7 to 1 stock split. Prior to the Split, Apple’s stock was over $600 per share. For someone just getting started in investing, or who does not have enough money to purchase a full share of a stock like Apple, you could miss out on buying the stock waiting to save up your pennies. Since Loyal3 allowed you to buy fractional shares, you could buy as little as $10 worth of Apple Stock, whereas on most other platforms you would have to have the full $600+ in order to buy Apple Stock. Apple choosing to split its stock helped as it dropped it’s cost to the $90 range, and is currently over $140. Without the last split, Apple’s stock would be just over $1000 per share!
Now with FolioFirst, you still have access to buy fractional shares, however there’s now a monthly charge to trade your stock. Checkout our previous Blog Post: What Should I Do With My Loyal3 Trading Account , for more information on what changed with the transition from Loyal3 to FolioFirst. FolioFirst is currently only available to previous Loyal3 customers, but once open you can look forward to another breakdown of their features. Motif is a platform very similar to what FolioFirst offers, and is open to the public currently, so I will go into further details on their platform instead.
Motif Investing is another platform which allows you to buy fractional shares of stock. Let’s say you have $1,000 available to invest, and you’re interested in buying stock in Amazon ($AMZN). Currently Amazon’s stock is $968, so you would have enough money to purchase 1 full share, however there would be an additional $32 sitting in your account un-invested if you used a “traditional” trading platform. The same with a stock like AutoZone ($AZO) whose stock is $570. In this case you would have $430 that you wouldn’t be able to invest in AutoZone stock unless you deposited another $140 in your account to afford a 2nd share. Another great feature of Motif, which stands out versus your more traditional trading platforms, is that you can purchase the stock of up to 30 different companies at once, all for one fee (currently $9.95). When purchasing stock with a traditional platform like TD Ameritrade you would need to pay a commission on each individual company’s stock that you purchase. This alone can save you between $150 to $300 if you had to pay $5 or $10 per company for all 30. With Motif you can buy pre-made Motif’s which follow certain themes like companies which make Robots, Video Game companies, or even companies that help to promote a sustainable planet! There are many themes, and you can even create your own. Checkout the theme I created for my Nephew here. Once you’ve created or purchased a pre-made Motif, you can continue to rebalance the percentages invested in each company and add more money over-time (dollar cost averaging). You can rebalance a motif you’ve already invested in for just $4.95.
Higher Costs - More Features
In the case of the next set of trading/investment platforms, the concept of higher costs is based on the fact you need to pay a commission for each transaction without the option to bundle multiple stocks into one purchase. These are your more traditional brokerage firms which allow online trading and have physical banks, in addition to platforms which are Day Trading friendly. The following list of investment firms all have recently dropped their commission price around or near $4.95. Fidelity was the first to drop their fees, followed by an immediate drop in Charles Schwab’s commission to match that of Fidelity! TD Ameritrade and E*trade dropped their commission fees to $6.95 from its original cost of $9.99 shortly after Fidelity and Schwab. There seems to be an active price war as more investors are getting comfortable with online trading. With the costs of an individual trade virtually the same with these platforms, the additional features, customer support, minimum deposits, and bonus offers stand out more as far as making your selection. I will not go into grave detail for these accounts, but will provide a bit of my experience with these platforms.
TD Ameritrade’s Think or Swim Platform is my favorite platform to use. When I began learning how to trade stock back in the early 2000’s, this was the first platform I used. TD Ameritrade’s Think or Swim platform has an option to trade stocks and options using “play money”. This way you can get hands on experience on how to place simple and advanced trades, or even trade options and futures. You also have access to watch CNBC within the Think or Swim Desktop or Mobile App, allowing you to hear about the latest financial news throughout the day. For a new investor this platform may have more features than you are ready for. However, if you’re looking for a platform that can grow with you, assuming you want to eventually dive into Options Trading or Day Trading, then this is my #1 choice. There are many settings that you can use for charting, setting alerts, scheduling trades for a future date, and setting up trailing stops and whatnot. If all of this is foreign to you, and you are not willing to learn what all of these things even mean, then maybe a Robot is better for you! Skip to the next section for Hire a Robot!
As far as the other High Cost More Feature platforms, checkout their sites for the most up to date account minimums and bonus offers. I’ve used the following list personally:
TD Ameritrade (Trade free for 60 Days)
Looking into SureTrader in the future as well as LightSpeed, which I’ve heard are great platforms for Day Traders.
Hire a Robot! - Roboadvisors
Ok maybe you’re a current Share Repurchase Newsletter Subscriber using your personal account or IRA to invest, you’ve maxed out your 401K match, and looking to invest more money. Or maybe you don’t want to be too involved in the investment process, and want someone else to handle all of the heavy lifting Well there are a few more platforms out there where you can just sit back and let the Robots take over! There are a group of platforms, which work similar to the Mutual Funds you’ll find in your 401K. You can deposit money on a regular basis automatically, there’s no charge for individual transactions, just a percentage commission based on the amount of money you have invested. These are known as Robo-advisors. I personally do not use Robo-advisors, as I make my own stock selections outside of what I invest in my 401K. Even within my 401K I am very selective of the Mutual Funds I select (mostly Vanguard, due to the lowest commissions…Warren Buffet agrees!).
There are even some 401K plans which allow you to use a Self-Directed 401K in order to select individual stocks, which I did participate in with a past job! Anyway, let’s get back to the Robo-advisors! The companies most people think of as a Roboadvisor are fairly new, as many of the ones I will mention have only been in existence in the past 5 to 10 years. Previously Robo-advisor software was sold to financial advisors, who then sold their services direct to the consumer, and made a commission between .09% and 3% of your total investable assets. Now consumers can access the software directly from these companies.
Vanguard and Charles Schwab are actually the largest two companies who provide "robo-advisor" capabilities, although they are not thought of in this manner. When Robo-advisors come to mind, these 5 companies are what typically come to mind in the US:
In fact, based on Assets Under Management (AUM), Vanguard is larger than Schwab and these 5 companies combined.
Make a Choice!
No matter which route you choose, investing is one of the best ways to build wealth and prepare for retirement. Checkout our previous post on How to Be a Millionaire to see how easy it is to become a Millionaire by retirement by investing between $5,000 to $10,000 a year in your 401K and/or IRA accounts.
If you are interested in learning how to read charts which help you to trade based on the markets psychology, checkout How Charts Can Help You in the Stock Market. Also take a look at The Only Investment Guide You’ll Ever Need, which is a book I recommend to anyone new to investing. Both books are listed on our Links Page and I highly recommend them.
Akeem The Dream
I enjoy discussing and learning about technology, stocks, sports, and beating my wife at Dominoes! As I learn, I love to share with family and friends so that we can share our knowledge. Thanks for being apart of the journey!