The financial service industry is not exactly geared to somebody who’s not Daddy Warbucks. If you’re a small investor, it seems like you have nowhere to turn. But there is hope!
Consumer Reports has published its new ratings of investment companies. The 10 choices below are tops in the magazine’s survey of more than 70 firms that are used by small investors.
This is the cream of the crop for small investors
The magazine surveyed more than 46,000 retail investors to find out what they thought of their brokerages. Here are the results:
|Brokerage name||Type of company||Reader score out of 100|
|Edelman Financial Services||Traditional investment firm||92|
|Vanguard||Online investment firm||92|
|USAA||Online investment firm||90|
|Baird||Traditional investment firm||89|
|Fisher Investments||Traditional investment firm||89|
|Thrivent Financial||Traditional investment firm||88|
|Charles Schwab||Online investment firm||88|
|Vanguard Personal Advisor Services||Robo-adviser||87|
|RBC Wealth Management||Traditional investment firm||87|
|Raymond James||Traditional investment firm||87|
Notice the presence of a couple of money expert Clark Howard’s favorite discount investment houses on this Top 10 list — Vanguard and Schwab. Both are “fiduciaries,” meaning their investment advisors have to act in your best interest — not their own.
In fact, Clark has a list of fiduciary brokerages that he likes here.
All the companies on Clark’s list treat their clients right, no matter whether that client is big or small. And the cost to you of doing business with them is extremely low. They all offer ultra low-cost funds that keep far more of your money working for you.
Before you can get started investing, do this first…
Of course, it almost goes without saying that before you can really think about investing, you’ve got to go back to basics.
First, you have to spend less than you make so you have some money left over to invest. That’s not something a financial planner can help you with. But Clark can! So where do you find the money to invest? It all starts with budgeting.
Here are some additional ideas to help you save more and spend less:
- 22 ways to save money on groceries
- Check out the best cell phone plans and deals
- 7 easy ways to cut your monthly bills
- How to shop for auto insurance and save hundreds
Watch the fees when you’re ready to get started investing
Stay away from commissioned salespeople like those at a full commission stock brokerage house such as Merrill Lynch. They don’t have what’s called a fiduciary duty to you under the laws of the United States.
In plain English, that means they’re free to put you in inappropriate or unsuitable investments to score themselves more money on commission.
Worse yet, they can charge up to 1.5% in typical management fees. Clark want you paying .1% or less.
If you’re paying anything more, you should seriously consider only contributing at work up to the company match. After that threshold, any additional money you save for retirement should be done in an IRA or Roth IRA outside of the workplace.
RELATED: How to open a Roth IRA
Clark Howard’s 4 Ds of investing
Clark routinely talks about four Ds when it comes to investing: Discount, dollar cost averaging, diversification and dull.
Dollar cost averaging
Dollar cost averaging refers to contributing the same amounts of money on a set schedule to an investment — as you would through an employer’s 401(k) plan with a weekly or biweekly payroll deduction.
By doing this, you never overbuy at the peak of market values and you never buy too little when stocks are “on sale” during economic downturns.
Second up is diversification. Like the name suggests, this is the idea of not putting all your eggs in one basket.
Buying an index fund meets this criteria by definition because you’re buying a basket of securities spread out across hundreds or thousands of companies.
Clark want you paying .1% or less. There are a variety of low-cost index funds that meet this criteria.
Finally, dull is an investing mantra for the ages.
An index fund doesn’t chase the hot companies of the moment or the investing equivalent of the flavor of the month. It just owns tiny slices and dices of hundreds or thousands of publicly traded companies.
And it doesn’t get anymore plain vanilla than that!