I recently opened a stock trading account at Scottrade. Here were my reasons:

• $7 limit trades. Not the best, but good enough for me.
• Local broker. It’s nice to have somewhere I can drive to in 10 minutes and be face-to-face with a human. Much easier to resolve things that way.
• No inactivity or maintenance fees.
• No transfer-out fee. If I am dissatisfied, I can just move all my holdings over to another broker with no charge.
• Free Gainskeeper. This service tracks your stock lots and helps you file your taxes at end of year. It usually costs extra at other brokers.
• Good reviews both offline and from online comments.
• Just $500 to open, but if you have $5,000 in account equity, you get free checkwriting, which you can then link up with other accounts.

The only thing that really made me think twice is that they pull a hard credit check when you apply. I decided it was worth it for the chance at finding a nice long-term broker.

Here is my opening process review, it was a bit of a whirlwind.

1. I applied online, and they asked me the usual ID verification questions. But there was no way to fund online. You had to fund via check, account transfer, or wire transfer. They also asked you to fill out an optional signature form so they have your signature on file in case you do any requests by mail.
2. I figured, hmm, maybe it’s time to try out my free outgoing wire transfer from WaMu Checking. But I wanted to make sure the funds would post right way, so I gave the local branch a call.
3. They said, yes, if it is received by the end of the market close, it should post the same day, but otherwise it would be the next day. But hey, did I live near the branch? If I dropped off a personal check by the afternoon, the funds would also be available the next day. Since this would also give me a chance to hand in the signature form, I said sure.
4. The branch was only 10 minutes away, but it was also in downtown, which meant parking was horrible. I called him up again and asked if they had a specific lot (blind hope), but they said that if I parked in the nearby City garage, they would validate me. Excellent!
5. I dropped off the check and the signature card without much issue. I also requested checkwriting while I was there. I also get a Check Card.

Overall, not bad at all. I figured out where the branch was, and I can visit anytime and not worry about parking. The branch was pretty sparse, like 6 desks and 2 people, but since there are 4 branches in my city I’m not too concerned. It was actually nice, as when I call I always speak to the same person, and I got to meet him at the branch.

The website is simple and logical, which is what I like to see. If you are logged in to the Scottrade site and click on the ‘Contact Us’ link, you always get your local branch’s telephone number instead of some overseas call center.

After some more research, I jotted down some thoughts on each of the six brokers I narrowed it down to last time. Again, these are all from my own admittedly-biased perspective and personal needs.

TradeKing
I have an account with TradeKing, and they seem ok. Online chat help is alright. The site runs slow as if it is on a 56k modem, but my trade executed promptly. $4.95 trades with no inactivity fees is nice. The founders of TradeKing also founded SureTrade, which themselves merged and are now part of Bank of America. Thus, they seem to be a likely future merger target, which I am trying to avoid.
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Is it weird that I’m excited to switch into my new portfolio? I just have to settle on a brokerage. Now, you are not going to find an exhaustive broker comparison here. I’m just one guy and I just want to find the best broker for me. I’m just selfish like that 😉

First, let’s start with all the discount brokers I can think of: TradeKing, ChoiceTrade, CyberTrader, Etrade, Interactive Brokers, MB Trading, OptionsExpress, Scottrade, ThinkOrSwim, Schwab, Fidelity, TD Ameritrade, Ameritrade I-Zone, Harrisdirect, Muriel Siebert, Firstrade, WallStreetE, Vanguard Brokerage, Bank of America.

Let’s start the pruning.

1) My account will have $10,000 in it to start.
2) I want no inactivity fees.
3) I want a maximum commission of $10 for trading 1000 shares, even if I only make 1 trade a quarter.
4) I also want to be able to speak with a broker if needed.
5) I only want to trade stocks with cash. I don’t care about options, margin rates, mutual funds, etc.

That leaves us with:

TradeKing, ChoiceTrade, MB Trading, Scottrade, ThinkOrSwim, Firstrade.

So, I’ll have to decide between these brokers. I already have accounts with Tradeking and MB Trading. Tradeking seems alright (I opened the account mainly for the bonus), although the reports that their website is slow are true. I didn’t like my first impressions of MB Trading, and have taken my money out, but my account is still open since they have no minimum balance. But I may just be tempted back by their low stock trade commissions with trades starting at $1. Now to read up on the rest of these guys. Here are some reviews I dug up so far:

Next: Part 2

I’m still pondering my portfolio options (one, two, three), but a good question is why I’m not looking more seriously into using ETFs instead. To be sure, there are plenty of good reasons to go with either mutual funds or ETFs. Besides wanting to dollar-cost-average, I’ll admit that I have another reason against ETFs that isn’t fully logical, but is still important to me. I’ll throw it out here and see if I’m the only one.

Here it is: If I’m going to put a huge hunk of my money at a financial institution, I want it to be at a dependable place that I feel comfortable with. That’s why I like Vanguard and Fidelity. They have many differences, but they are both dependable companies that I feel are solid and have provided me with excellent customer service up until now.
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Apparently this is the big news today. Check out Google Finance for yourself. More evolutionary than revolutionary, but as always competition is good, and will lead to more improvements for all finance sites. Yay AJAX.

As mentioned before, our goal when investing is to maximize the potential return for the amount of risk we decide to take. But how do you find that out? It seems the traditional way to decide this is through what financial planners call a Risk Questionnaire. You answer a series of multiple choice questions, and in the end it suggests an approximate asset allocation, usually telling you how much to put into stocks and how much in bonds.

Having more stocks give you higher overall returns, but higher volatility. Having more bonds does the opposite – it gives you lower returns, but decrease the up and down swings of your overall portfolio. Let’s try out some online risk surveys and see what comes out…
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While continuing my reading, it seems like Dimensional Fund Advisors (DFA) mutual funds are the Porsche of index funds. They are sexy in that they index everything under the sun (including stuff Vanguard does not) such as having a SmallCap Emerging Markets fund. They are well-engineered, being based on the best academic research available and having famous professors Fama & French on their boards. DFA tries to take indexing to the next level. Finally, they are exclusive as their funds are only available through approved financial advisors. Of course, this also means you’ll also have to have at least $100,000 to play with and pay annual advisor fees. I believe this is to avoid the performance hit on their funds from any active trading by untrained investors.

I don’t know if the fees are worth it, but, just like a Porsche, I still have this mysterious instinctual urge to own some!
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Most people who have done some reading on investing have heard of the concept of Dollar Cost Averaging (DCA), which involves spending the same amount of money regularly buying their chosen investment, regardless of how the investment fluctuates. For example, I could commit to buying $100 of VFINX every month, no matter what the share price is. If it drops, I buy more shares at the lower price.

Near the end of reading The Intelligent Asset Allocator, I ran across the concept of Value Averaging (VA), which is supposedly gives you a bit better returns than DCA. A simplified version of this method involves trying to increase the total value of your investment by the same amount every month. For instance, instead of my DCA plan above, I could decide to increase my total value of VFINX by $100 each month.
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An alternative to using mutual funds to split up my asset allocations is using ETFs. One of the perks of ETFs is that they often have lower expense ratios than similar mutual funds. An example is the Vanguard Total Stock Market Index Fund (VTSMX) vs. Vanguard Total Stock Market VIPERs (VTI). Both track the MSCI US Broad Market Index, but VTSMX has an expense ratio of 0.19% vs. VTI’s 0.07%. But, since I plan on dollar-cost-averaging, I must also consider transaction costs. If you meet the minimums, it costs nothing to buy VTSMX in a Vanguard account. But every time you buy VTI, you have to pay stock commissions.

The Motley Fool recommends that you keep your commission cost below 2% of your invested principle. I personally like to keep it under 1%. This means if you are paying $5 a trade, you should be buying at least $500 of shares at a time. Otherwise the stock will have to gain more than 1% just for you to break even.
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Of course, as soon as I say how simple my investing is I go and try to complicate it. I spent this weekend reading my new copy of The Intelligent Asset Allocator as part of my upcoming portfolio recontruction. Man, it is some dense stuff. Let’s just say it’s no Harry Potter.

In addition, for my portfolio research I will also be referring back to my two favorite investing books so far – The Four Pillars of Investing (same author) and A Random Walk Down Wall Street.
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Thanks to everyone who shared why they do or do not trade individual stocks. Here’s what I think. I believe there are market inefficiencies that can be taken advantage of. I also think that unless you understand how to read a company’s financial statements and investor psychology, it is highly unlikely you can beat the market over time. Since I don’t know either of those things, I have no business trading stocks until I do.

But! I think a more important question is whether spending all that time looking at stocks is worth it. Not only do you have to build up your knowledge overall, you then have to constantly monitor the markets for new developments. After all that, by how much are you really going to beat a well-balanced mutual fund portfolio? I personally feel that unless you have a real passion for it, most people would get a better return on their time pursuing other things like career advancement or more entreprenurial activities. So I think I’m gonna do that instead.