If you’ve been following my financial story on this blog for some time, you will know that I don’t really do non-retirement investing in stocks.
Nor do I do any single stock investing within my retirement accounts.
I’ve made this clear in several posts. And I mostly keep my investing category filled with posts about tax-advantaged retirement investing, information about mutual funds (because that’s what I know and do), and using Vanguard, the mutual fund company.
It’s boring, but I believe it’s all I need to do to build a solid retirement account for myself. Why do more than you have to, right?
But you can plainly see in my sidebar that I highlight the various discount online brokers (a place where taxable, more active trading usually takes place). I also roll out big promotions from these brokers from time to time. So an obvious question pops up: what would PT do with an online broker account? Here’s how the reader recently put it:
I was wondering if you could go more in-depth with ShareBuilder. I noticed you say you opened an account but then write about not investing individually. I feel the need to take advantage of testing out ShareBuilder with the Capital One 360 promotion, but feel rather lost about doing so.
My answer in steps:
- I plan on doing a full ShareBuilder review at some point.
- I only invest at ShareBuilder (or any online discount broker) if I’ve been given free money to do so.
- I have bigger fish to fry with my earned income: retirement (although you could invest in an IRA with ShareBuilder, I choose to do it at a mutual fund company, Vanguard), debt reduction (it’s more important to me that I don’t have debt in my life), building a cash cushion, and diversifying into physical assets (like real estate).
- If I was new to retirement investing and didn’t have enough money to start investing at Vanguard (their funds have minimums in the thousands), I would consider opening up a discount brokerage account and investing using an IRA. I would likely purchase shares in boring index funds or target date retirement funds to go inside my IRA.
- When my income gets to a level where I am maxing out my tax-advantaged retirement savings options, I will consider the discount brokerage firm as a place to start single stock (likely dividend stock) taxable investing.
So, translation for anyone in the reader’s situation above: if you have a small amount to start investing for your retirement (or if you can only commit to a small monthly contribution), consider an IRA (Roth or Traditional) inside an online broker like ShareBuilder. You could also consider a similar move using the unique service offered by Betterment.
As for what to put inside your IRA with the online broker, well, that’s really up to you. Take time to understand the concepts of diversification, risk, and asset allocation. Lastly, take some time to understand the importance of keeping your investing expenses low. Most discount online brokers will have all the investment types you need though.
I definitely could use your help in answering this question. Do you use an online broker like ShareBuilder, TradeKing, or Zecco? If so, what do you use them for? If not, why?