Investing with a Broker vs. a Computer

Online Broker

Your Investment Options

Until recent years, you only had two options when you wanted to invest. You either figured it out yourself by diligent study or hired a professional. Both options have problems. Investing can be complicated. Warren Buffett says, “There seems to be some perverse human characteristic that likes to make easy things difficult.” People spend a lifetime learning the ins and outs of the industry, and it can be difficult to pick up enough knowledge to feel comfortable making your own investments.

Alternatively, many financial professionals have a minimum investment requirement in order to work with your accounts, meaning that many young investors do not have this option. In addition, financial professionals charge a fee for their consultation.

So, traditionally, people who weren’t financially savvy stuck with their 401(k) and IRA accounts. Now, they have the option of using a robo-advisor. Just as we have developed computers and programs to drive our cars, care for the elderly and remind us to water our plants, you can invest online with computer-generated expertise.

The Online Broker Business

The leaders in the online broker business, with millions of customers each, are Scottrade and E-Trade.

Nerdwallet.com compares the two platforms in the areas of (1) research and trading platforms, (2) investments selection and (3) fees and commissions. However, this option is no clear winner. Each person’s financial situation is different, and you will have different needs than those around you. When choosing which robo-advisor is best for you, the only option is to do your research.

When determining if the online broker is right for you consider these factors:

  • Control. How much control do you want to have over what happens in your portfolio? Online investing makes you the driver. You have complete control. If that sounds scary, you may find comfort in knowing a licensed professional will manage your funds.
  • Research. The internet is full of tools that can help you become comfortable personally managing your investments. A vast majority of these tools are free. When working with a broker, you are paying for expertise and you know their feedback is credible. Brokers are educated and licensed, and many spend their careers learning to predict and better understand the industry and market. If you are basing your online investments strategy on what you read in an article somewhere, you can never be sure that the source is credible.
  • Cost. Brokers tend to be more expensive. They perform a service for an outlined fee that is typically higher than the $7 or $10 commission per trades that E-Trade and Scottrade charge clients.
  • Goals. What are your investment goals? If you prefer to dump your money in a 401(k) and never touch it again, you likely don’t need the continue guidance of a broker.
  • Tech proficiency. Are you savvy on the computer? For older investors or those who are not familiar with the basic workings of the internet, it might be more appropriate to physically visit a broker rather than manage funds online.

If recent indications are worth anything, it is no secret that many of our processes are being outsourced to computers. There are many books, resources and online training schools that teach you how to do your own trading and stock and bond buying proficiencies. One such well-known school is Online Trading Academy. Use the criteria above to determine whether you are comfortable relying on the knowledge of a computer program to manage your investments.

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