When it comes to investing, choosing where to invest is often the first and most important choice you make. Choose the right one and you’ll be in a great place to choose from a variety of low-cost funds and trade for free. Choose poorly and your investment opportunities will be limited and commissions will be high.
When investing for a long time, commission fees can make a huge difference to your overall bottom line and determine whether you can meet the recommended retirement savings goals.
Online brokers come in all shapes and sizes, but in good brokers I always look for three things:
- Low fees
- A wide selection of low-cost index funds and ETFs (for those who do not trade stocks)
- Ease of use
Below we will break down some of the best brokers and rank them according to the three criteria above. This way, you will be able to make a smart personal finance decision and choose the best online broker for you.
First, here’s a quick guide on what an online broker does (you experts can skip it).
What is an online broker?
An online broker is essentially the same as a traditional broker, except, you guessed it, you use them over the Internet.
Traditional stock brokers provide you with a platform to transact and make investment decisions. That is, you choose which investment instruments you want to invest in, and then make a purchase (or, ultimately, a sale) through a broker.
Simply put, online broker is an average masterNS… They are the bridge between you and the stock market.
Best Online Brokers for Index Investing
Here are some of the best online index investing brokers.
Note: the score is given out of 10 points. With three categories, the total maximum score for each broker is 30.
Charles Schwab
RATING: 26
- Fees: 9
- Diversity: ten
- Simplicity: 7
Charles Schwab is one of the best online brokers. They offer a wide range of low-cost index funds and ETFs, and have cut their trading fees this year to better compete with some new fintech companies (like Robinhood).
Their platform is relatively easy to use. But, as in any other business, it takes time to pick up speed. However, once you get the hang of it, it is easy with Schwab to develop a robust index investing strategy.
Commission snapshot:
- 0.02% lowest commission for ETF or index fund
- Commission 0 $ per trade
Notable funds:
- SWTSX – Schwab General Stock Index Fund (0.03% expense ratio)
- SWISX – International Index Fund Schwab (expense ratio 0.06%)
- SWAGX – Schwab US Aggregate Bond Index Fund (expense ratio 0.04%)
Vanguard
RATING: 24
- Fees: 8
- Diversity: nine
- Simplicity: 7
Vanguard is the original and arguably the best place to buy index funds. It was founded by John Bogle, the man who created index funds himself.
While they don’t have the lowest fees or the most attractive online platform, they’ve long been a trusted broker for index investors. Plus, their fees are still pretty damn low.
Commission snapshot:
- 0.04% lowest commission for ETF or index fund
- USD 0 commission per trade (with Vanguard funds)
Notable funds:
- VTSAX – Vanguard General Stock Index Fund (0.04% expense ratio)
- VTIAX – Vanguard Total International Stock Index Fund (expense ratio 0.11%)
- VBTLX – Vanguard Total Bond Market Fund (expense ratio 0.05%)
loyalty
RATING: 22
- Fees: 10
- Diversity: 5
- Simplicity: 7
Fidelity appears to have slightly fewer index fund options compared to Vanguard and Schwab, but that doesn’t always matter. Especially if you are building a simple portfolio of three funds.
They do offer funds with an expense ratio of 0%. That’s right, 0%!
Neither Schwab nor Vanguard currently offer this. However, it could be something that will change in the future as price becomes more and more the focus of these online brokers.
Commission snapshot:
- 0.00% lowest commission for ETF or index fund
- USD 0 commission per trade (with Fidelity funds)
Notable funds:
- FNILX – Fidelity ZERO Large Cap Index Fund (0.00% expense ratio)
- FZROX – Fidelity ZERO Total Market Index Fund (expense ratio 0.00%)
- FZILX – International Index Fund Fidelity ZERO (expense ratio 0.00%)
Best Online Brokers to Trade Stocks
Here are two of the best online stock trading brokers in case index investing isn’t for you.
Note: the score is given out of 10 points. With three categories, the total maximum score for each broker is 30.
Charles Schwab
RATING: 27
- Fees: 10
- Diversity: ten
- Simplicity: 7
As for stocks trading in stocks, Schwab is also on this list. Except that their score goes up by one point. This is because Schwab offers free trading on all stocks (as of mid-2019) and there are no commissions or expense ratios when it comes to owning stocks (with index funds or ETFs, for example).
Schwab is still held back by a somewhat clumsy online platform. Although what he lacks outwardly, it is compensated by reliable research tools.
Commission snapshot:
Robin the Hood
RATING: 28
- Fees: 10
- Diversity: ten
- Simplicity: eight
Robinhood has a slight edge over Schwab due to its simple and intuitive platform. This, combined with free trading, is hard to beat!
However, it offers a simple platform. This helps make navigation easier, but if you want to do robust stock research, you may need to do it outside of the Robinhood app.
It’s also important to note here that simplicity isn’t always best when it comes to investing. Robinhood makes it easy to trade stocks, almost like a game. Which, of course, is not so! All transactions should be made carefully and only after careful research.
Commission snapshot:
Bonus: Best Robo Advisors
Robo-advisors are even newer than online brokers and have somewhat changed the rules of the game for index investors. Those looking for non-interference have found a solution in robo-advisers.
Here are two robotic advisors to look out for.
Note: the score is given out of 10 points. In the three categories, the total maximum score for each robo-advisor is 30, with the exception of Blooom, which is rated out of 20 as they do not offer funds themselves.
Improvement
RATING: 22
- Fees: 5
- Diversity: 7
- Simplicity: ten
Robo-advisors tend to benefit from ease of use, simple and straightforward. Especially with Betterment, which offers a clean and easy-to-navigate interface. Plus, once you answer their questions, they’ll manage your investment for you. It couldn’t be easier!
However, Betterment has its own value – a management fee of 0.25%. This fee significantly increases your investment, so you need to be sure that the simplicity that Betterment brings to your life is worth the extra cost!
Commission snapshot:
- Management fee 0.25%
- Commission range 0.03% -0.25% for ETFs
Notable funds:
- SCHB – Broad US stock market Dow Jones (expense ratio 0.03%)
- VOICE – US CRSP mid-cap value (expense ratio 0.07%)
- SCHF – FTSE Developed ex-US (expense ratio 0.06%)
Ellevest
RATING: 23
- Fees: 5
- Diversity: eight
- Simplicity: ten
A notable player in the robotic consultant market is Ellevest, whose mission is to bridge the gender gap in investment consulting. They are similar to Betterment in that it selects a diversified ETF portfolio for you based on your investment goals.
But the difference with Ellevest is that it uses a proprietary algorithm based on field and many other factors to determine how much money you need. (For example, women tend to live longer and their peak wage years are on average earlier than men, so it makes sense that their investment needs are different.)
Commission snapshot:
- Management Fee 0.25% (Ellevest Digital), 0.50% (Premium CFP Access + Career Coaching)
- Commission range 0.03% – 0.25% for ETFs
Notable funds:
- VTI – Vanguard Common Stock Market (0.03% expense ratio)
- BND – Vanguard General Bond Market (0.035% expense ratio)
- SCHP – Schwab US TIPS (0.05% expense ratio)
Blooom
RATING: 17 * (out of 20)
- Fees: 7
- Diversity: n / a *
- Simplicity: ten
Blooom is a unique robot advisor that focuses on 401 (k) s. They don’t offer different means themselves, but rather connect with your existing 401 (k) provider to offer optimization tips and maybe even manage your account.
Blooom offers two levels of service:
- Free 401 (k) Status Check: Blooom can connect to your 401 (k) to verify your account and provide recommendations to optimize your investment.
- Paid Ongoing 401 (k) Management: Blooom offers permanent 401 (k) management so you can take a more hands-off approach and let them take the wheel
Commission snapshot:
- Free 401 (k) analysis
- Fixed fee of $ 10 per month for day-to-day 401 (k) management
What Blooom Free Analysis provides:
- Diversification recommendation
- Commission check is a guarantee that you get the lowest commission possible
- Obvious precautions, such as investing in company stock
- Retirement Tracking Snapshot
Summary: Best Online Brokers
Remember, choosing an online broker is one of the first investment decisions you make, and it is very important! It defines your entire investment career.
Whether you are looking to invest in index funds or stocks, there is an online broker for you. Choose wisely!
This article originally appeared on The Money Mix and has been republished with permission.