Invest for less Here are the best investment companies for your money

Clark.com Staff
Invest for less | Here are the best investment companies for your money

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Ready to open your first brokerage account and start investing for your future? Here’s what you need to know…

Investing made simple

First off, what is a brokerage account?

A brokerage account is a type of taxable account you open with a stock brokerage firm as a way to invest your money in the stock market. You deposit cash into the account and then decide how you want to invest the money — or else you let someone else make that decision for you.

Brokerages themselves come in two flavors: Full service and discount.

  • With a full-service brokerage account, you get an active management style. That means you work with a dedicated broker. While that sounds great, the costs are much higher for you as an investor. Examples of full-service brokerages include Morgan Stanley, Edward Jones and Merrill Lynch.
  • With a discount broker, everything is pretty much done online these days and you pay much lower fees since there’s not a lot of hand holding going on. Examples of discount brokers include Vanguard, Fidelity and T. Rowe Price.

When you go with the discount houses, you’re taking a passive investment style. That typically means you’re putting your money in low-cost index funds that mirror the larger stock market. You’re not depending on a supposed Wall Street whiz kid to make hot stock picks for you.

Money expert Clark Howard prefers that you invest with discount brokers, not full-service ones.

Listen: Clark discusses full-service brokers vs. discount brokers on The Clark Howard Show Podcast

Major discount investment houses

Here’s a look at the major discount players…

Vanguard

Vanguard is now the second biggest financial house in the world, behind Black Rock. They offer extremely low costs on all types of investing.

Fidelity

Fidelity is a newer entrant into the low-cost world, but they’re now being very aggressive by lowering the cost of a typical stock trade to $4.95.

T. Rowe Price

T. Rowe Price is smaller than Vanguard and Fidelity. The company offers excellent low-cost no-commission funds that follow the traditional active management style. It costs more to invest with T. Rowe Price in comparison to the others, but that’s because it isn’t as passive.

The industry shifts to robo-advising

For many years, big players like Vanguard and Fidelity operated on a simple full service vs. self-service model. You could either pay them to handle your investments or you could do it yourself. But now most of those companies offer a new and wholly different level of service called robo-advising.

What are robo-advisors?

Robo-advising is a new investment development in which automated computer algorithms and model portfolios are used to select and balance investments based on certain information provided by the investor.

Factors such as age, income, current savings, risk tolerance and goals are all taken into account to develop a plan catered to your needs. All you have to do is answer a few questions and a robo-advisor creates an investment portfolio designed specifically for you.

Keeping costs low is a key objective of these investment accounts, so they commonly use low-fee exchange-traded funds to build portfolios. Many firms charge a management fee of between 0.25% and a little less than 1% a year, either based on the amount you invest or some charge a flat annual fee.

But know this: There is minimal human interaction with most robo-advising. The goal is allocating your investments, not doing in-depth financial planning.

If you do need to talk with someone, be sure you pick your robo-advisor wisely to be sure the human touch is available.

Choosing the right robo-advisor for you

It’s important to understand the differences between all of the services out there in order to choose the best one for you and your needs. Here are some of the best options to consider.

Industry leaders

Charles Schwab

Schwab’s Intelligent Portfolios robo-advising service is a great choice if you have $5,000 or more. Schwab charges no fee to plug you into an extremely low-cost portfolio based on the risk you can handle in an investment account or retirement account. The annual management fee ranges from .08% to around .25%. That’s almost free!

Fidelity

Fidelity Go is Fidelity’s answer to robo-advising. It has expenses of .35% per year and you only need a $5,000 minimum to get started. Fidelity Go uses a combo of robo-advising and human advisors.

Vanguard

Vanguard Personal Advisory Services cost .30% of your assets per year with a minimum asset deposit of $50,000. It employs a blend of computer learning and the human touch to help you reach your goals.

The newer players

Wealthfront

Wealthfront was recently ranked by NerdWallet as one of the top robo-advisors out there. Wealthfront is the world’s largest automated investment service with over $1 billion in client assets. It’s fully automated and has a low account minimum, as well as an easy-to-use interface and innovative features. Since it is fully automated, there’s little human interaction.

But in terms of fees, Wealthfront does not charge an advisory fee on the first $10,000 you invest. On amounts over $10,000, Wealthfront charges a monthly advisory fee based on an annual fee rate of 0.25%. The only other fee incurred is the one embedded in the costs of the ETFs (exchange traded funds) that a client owns as part of their portfolio — which averages about 0.15%.

The minimum investment is $5,000.

Betterment

Betterment was also ranked by NerdWallet as a top choice since it also has a low account minimum, along with an easy-to-use interface and innovative features.

Betterment is also a fully automated investment service with very little human interaction. Like Wealthfront, Betterment starts the process by asking you a series of questions and then recommends an investment plan based on your situation. Betterment charges a maximum 0.35% monthly portfolio fee which decreases as balances grow.

There is no minimum investment.

WiseBanyan

WiseBanyan earned four stars in NerdWallet’s ratings.

WiseBanyan manages your investments for free, but does charge for additional services. So it’s important to consider the potential cost of these paid add-ons that you might want or need.

You only need $10 to open an account and there’s no minimum account balance required. Just like with most robo-advisors, you do have to pay any fees associated with funds you’re invested in.

Learnvest

Learnvest is an online advisor that doesn’t manage investments but offers clients a fully customized financial plan to help you balance needs and wants in order to reach your goals.

With Learnvest, you get access to a Certified Financial Planner via phone or email, as well as online tools and classes to help you make better financial decisions.

Learnvest charges a one-time set up fee of $299, plus a $19 monthly fee. Check out the website for more detailed pricing and available options.

Personal Capital

NerdWallet rated Personal Capital as among the best options for those who want access to a financial planner in the midst of their robo-advising. So it’s geared toward investors who are looking for low management fees but also want more human involvement. You’ll get both computer automated investing and dedicated financial advisors to help you out.

Personal Capital requires $25,000 to get started and fees range from 0.49% to 0.89%.

Want a “set it and forget it” approach to investing?

So the discussion up until now has been about human vs. machine or some combination thereof when you want to invest.

But some people don’t want to have to deal with either a human or a machine to get investing done!

For folks like that, targeted retirement are the best choices.

With these funds, you pick the year you expect to retire — let’s say 2045. You buy that portfolio and over the next nearly 30 years the company you choose picks a mix of stocks and bonds to get you the best return with the lowest overall risk.

No mess, no fuss and no need to get involved!

Fidelity Freedom Funds

  • Fidelity.com
    Invests in a combination of stocks, bonds and cash equivalents
    Years available: 2020, 2025, 2030, 2035, 2040, 2045, 2050 and 2055, plus the Fidelity Freedom Income Fund for those already in retirement
    Expense: Between 0.19% and 0.77%. Full details here.
    Minimum investment: $2,500 minimum to open an IRA; $2,500 minimum to open an investment account

T. Rowe Price

  • TRowePrice.com
    Invests in a combination of stocks, bonds and cash equivalents
    Years available: 2020, 2025, 2030, 2035, 2040, 2045, 2050 and 2055
    Expense: Between 0.59% and 0.75%. Full details here.
    Minimum investment: $1,000 minimum to open an IRA; $2,500 minimum to open an investment account

Vanguard Target Retirement Funds

  • Vanguard.com
    Invests in a combination of stocks, bonds and cash equivalents
    Years available: 2020, 2025, 2030, 2035, 2040, 2045, 2050, 2055 and 2060, plus the Target Retirement Income Fund for those already in retirement
    Expense: Between 0.14% and 0.16%
    Minimum investment: $3,000 minimum to open an IRA or general account

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