Discount Brokers

How to find the best discount broker for your asset allocation portfolio.

A discount broker is a company that allows you to buy and sell stocks, ETFs, mutual funds, and other securities. Discount brokers take orders from you online or over the phone and their fees are less than "full service" brokers. Some online brokerages have local offices. Unlike a full-service broker, a discount brokers typically does not offer individualized investment advice.We have identified three categories of discount brokers:

  1. Portfolio-Oriented Brokerages. These firms allow you to create a portfolio using a recipe, and then quickly rebalance that portfolio as needed at low cost.
  2. Trading-Oriented Brokerages. These firms provide sophisticated software to allow you to rebalance your portfolio and monitor your positions.
  3. Traditional Discount Brokerages. These firms provide basic trade execution using their web site and online tools.

Portfolio-Oriented Brokerages

These on-line brokerages permit you to invest in a basket of funds for a fixed fee. For example, Motif Investing allows you to create a portfolio of up to 30 ETFs or stocks an then rebalance the entire portfolio for $9.95.  You can buy and sell any combination of the 30 investments for a flat fee. This pricing scheme can be cost-effective for implementing an asset allocation portfolio recipe.

These brokers also offer a menu of portfolio recipes that you can implement using their trading platform. 

To rebalance your portfolio using a recipe you can use the broker's online rebalancing tool, which usually takes a few clicks.

 

Motif Investing   Minimum to open account $0 Cost per market-order trade $4.95 Cost to trade during scheduled daily window not available Cost to trade all items in a portfolio $9.95 for unlimited trades within a single portfolio ("motif") Cost for unlimited annual trades not available Rebalancing tool? Yes Number of ready-made portfolios 146 Create custom portfolio? Yes; up to 30 tickers web site www.motifinvesting.com

 

FolioInvesting   Minimum to open account $0 Cost per market-order trade $10.00 Cost to trade during scheduled daily window $4.00 Cost to trade all items in a portfolio not available Cost for unlimited annual trades $290.00 Rebalancing tool? Yes Number of ready-made portfolios 167 Create custom portfolio? Yes; unlimited tickers web site www.folioinvesting.com

Trading-Oriented Brokerages

These on-line firms are focused on meeting the needs of advanced investors, fund managers, and money managers. They offer software that provides real-time updates and allows you to buy and sell equities, funds, options, foreign exchange, and commodities. A key feature for asset allocation investors (who are following a portfolio recipe) is the rebalance tool which automatically creates all of the buys and sell orders needed to rebalance a portfolio.

Interactive Brokers   Minimum to open account $10,000 Cost per market-order trade $1.00 or $0.0035 per share Cost to trade during scheduled daily window not available Cost to trade all items in a portfolio not available  Cost for unlimited annual trades not available Rebalancing tool? Yes Number of ready-made portfolios 0  Create custom portfolio? Yes; unlimited tickers   web site www.interactivebrokers.com

Traditional Discount Brokerages

These firms have low commissions and allow you to enter trades using their website or online trading tools. However, to rebalance your portfolio using a recipe you must follow these manual steps:

  1. calculate the percentage out-of-balance for each position
  2. convert the percentage to dollars
  3. convert the dollars to number of shares
  4. plan the buy and sell orders, using the number of shares from the step above
  5. place your orders by entering each trade individually using the broker's web site, paying a commission for each trade

OptionsHouse Minimum to open a cash account $0 ETF trading cost (online) $4.75 web site www.optionshouse.com

 

TradeKing Minimum to open a cash account $0 ETF trading cost (online) $4.95 web site www.tradeking.com

 

TradeMonster Minimum to open a cash account $2000 ETF trading cost (online) $4.95 web site www.trademonster.com

 

Vanguard Minimum to open a cash account $3000 ETF trading cost (online) $7.00 web site www.vanguard.com

 

Scottrade Minimum to open a cash account $500 ETF trading cost (online) $7.00 web site www.scottrade.com

 

Fidelity Minimum to open a cash account $2500 ETF trading cost (online) $7.95 web site www.fidelity.com

 

Charles Schwab & Co. Minimum to open a cash account $1000 ETF trading cost (online) $8.95 web site www.schwab.com

 

USAA Minimum to open a cash account $0 ETF trading cost (online) $8.95 web site www.usaa.com

 

TDAmeritrade Minimum to open a cash account $0 ETF trading cost (online) $9.99 web site www.tdameritrade.com

 

E-Trade Minimum to open a cash account $500 ETF trading cost (online) $9.99 web site www.tradeking.com

 

ShareBuilder Minimum to open a cash account $0 ETF trading cost (online) $6.95 web site www.sharebuilder.com