How to Find an Appropriate Investment Firm

Ah, choosing an investment firm. It’s the very first step that you need to do when investing, before you can even make your very first investment. Yet, for something that is as important to investing as tying your shoes is to running, there’s plenty of details involved that aren’t always covered sufficiently in most investing advice sources, including, up until now, this very website.  But all that will change today, as I go through some of the factors that you need to consider as you look for a good investment firm for you and your needs.

Step One: Find a firm with access to piggie banks and calculators

A note before we begin, though: there’s no such thing as a ‘perfect’ investment firm. Each firm has its own traits and its own mixture of characteristics. For example, some are very fast at executing trades but rather expensive; some have a lot of investment options but are very slow at putting orders through; and some are extremely inexpensive but don’t provide much in the way of selection; these are just three possibilities among many other types. For one type of investor, one investment firm might be just perfect, while another investor might find it absolutely atrocious. As a result, don’t expect me to point out a single firm as ‘perfect’; instead, we’re going to consider some factors to look for when

Evaluating Investment Firms

As you might have guessed from my examples above, there are more than a few issues to consider when judging whether an investment firm Deserves your business. Which ones are most important to you, will depend on your own personal situation, but there are quite a few should keep in mind, including:

1. The Types of Investments Available: There are numerous investments out there, and different investment firms allow you to invest in different ones. Some firms allow you to buy stocks or bonds, others cover more exotic investment and speculation types like Forex, options, or futures, and then there are firms that cover some mix of everything mentioned so far (and the numerous other investment types that I haven’t covered). You don’t necessarily need a single firm that offers all the types of investments you are interested in making, but it can make it easier to keep track of all your investment money. It should also go without saying, but if a firm doesn’t offer any of the investment types you want, you should look into other options. Although, if you need another bank, you can look into:

2. The Other Financial Services Offered: Many investment firms also provide other financial services, from check writing to ATM cards, potentially taking care of nearly all your banking needs. Whether you think you need to go for such services in an investment firm is up to you, but it is something else to consider as you look over the (sometimes rather long) lists of services firms offer.  It’s possible, by combining your banking needs with your investing services, that you’ll be able to simplify your number of accounts.  Whether that is worth doing (and worth considering as you try to choose the best investment firm for you) will depend on your own opinion on the matter (as well as what you think of your current bank).

3. Depth and Quality of Customer Service: Customer service is always a helpful benefit, although how much you need will obviously depend on you and the type of investing you hope to do. If you are a strict do-it-yourself type who doesn’t expect to ever need help with your investing, you’ll be looking for a much different type of customer service than someone who wants to be able to get help at any time. It’s also an important consideration when decided whether to go with a discount or full-service brokerage; while the former is generally less expensive, the latter can provide a much deeper level of service. (Although, as the fees collected by full-service brokers tend to be based on the amount of trading you do, you should consider the advice they give, particularly about trading more often, with a grain (or a few thousand) of salt.)

4. Tutorials (and a Possible Practice Account): I’ll admit that this one is a particular trait I look for, but it’s definitely worth considering, particularly for more exotic types of investing like forex and options. It’s easy to lose money in many types of investments (sometimes more than you initially invested, as with the aforementioned forex and options), and firms that try to get you to start invest immediately should cause you to pause. A firm that provides plenty of help with how to invest, and particularly allowing you to practice your trading to see how you’d do without putting your money at risk.

5. The Cost of Investing: Perhaps the most important issue to consider, given that we are talking about money, is the cost involved in investing. While there are a few different issues to consider here (the amount you need to invest to open an account and the fees charged for various services, for example), the main issue is the cost of each trade. The difference between $7 per trade and $25 per trade can prove to be pretty substantial amount over the course of a year, let alone a lifetime. That said, while less expensive is generally better (here as elsewhere in life), higher per-trade costs can be justified if the broker offers services (such as those mentioned above) that make up for the higher cost. Don’t choose a firm based strictly on the cost of trading; assuming you aren’t day-trading or something similarly vigorous (which you shouldn’t, but that’s a subject for a different article), the costs shouldn’t be your first consideration when evaluating an investment firm.

These aren’t the only factors you may want to consider, but they should give you an idea of what types of factors to consider when evaluating an investment firm. What did you look for when evaluating possibly investment firms? What investment firms do you use?

Picture from 401(k) 2012

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