Researching Online Brokerages Worth the Effort

While many retail investors have fled from highly volatile equity markets and outflows from equity mutual funds have reached historic proportions (ICI reported that investor holdings in stock mutual funds decreased by 9.5% in September), the ongoing zero interest rate policy of the Federal Reserve has lowered the return on Treasuries and all other fixed asset classes likewise offer returns that barely, if at all, keep pace with inflation.

As stocks made huge moves in October, many retail investors missed out, and it's likely that more will pile into the rally, sensing that the problems stemming from Europe have passed and it's once again safe to invest in stocks. That rationale may or may not prove correct, but, whatever the case, being at least partially invested in stocks is a solid strategy in good times or bad.

If one is inclined to jump in, the easiest way is to plug right in from the comfort of home or office through one of the many online brokerages available. The range of online brokerage products and services has expanded greatly since the infancy of the internet back in the late 1990s, and it pays to research the various options available.

According to a recent ICI report, households with internet access owning mutual funds is nearly universal, with ninety-one percent of all households owning mutual funds have internet access with ninety-eight percent aged 35-44 connected to the internet from their homes.

Additionally, the report goes on to say that eighty-four percent of mutual fund–owning households with internet access went online for financial purposes, such as to check their bank or investment accounts, obtain investment information, or buy or sell investments, though only nineteen percent used the internet for trading purposes, so there is still plenty of room for more home use of online brokerages.

What any good online brokerage provides in the way of online brokerage products and services starts with a stable and easy-to-use interface, simplifying the process of buying or selling stocks, ETFs or mutual funds. Beyond that, one would be advised to seek a brokerage that does not have maintenance or inactivity fees, offers free dividend reinvestment plans and options trading at a low price per contract.

Other features may include free research tools such as screeners, tracking and historical comparisons, but fees are by far the main differentiator of online brokerages. Many offer packages of free trades for new users, low cost stock trades and the ability to have broker-assisted trades for special circumstances. Fees for mutual fund trading should be minimal to free. For users who wish to trade on margin, rates vary widely and should be investigated thoroughly. The ability to transfer funds without hassle over the internet, to and from a personal checking account should be standard. Low minimum requirements, both for an initial funding and ongoing transfers is also a must.

A number of brokerages have expanded beyond stocks and mutual funds to forex, commodities and bonds, so an astute investor should prepare a list of requirements and priorities before opening any online account.

Stocks inherently have risk, so there's no reason to add to the risk and frustration by choosing an online brokerage that doesn't fulfill all of one's needs.