Friday, July 29, 2011

Comparing online brokerages

Online brokerage accounts have made stock trading and investing accessible to more people.
When you’re ready to invest like a pro, make sure you consider the following factors so you choose the brokerage company that’s right for you.

Trades may be inexpensive, but online brokerages have come under fire for having a slew of hidden, unadvertised fees.
The American Customer Satisfaction Index reports that online brokerages’ fees are most likely to irritate consumers.

Customer satisfaction
Customer service and easy-to-use online interfaces can make up for the fees.
Charles Schwab topped the ACSI’s list for customer satisfaction of Internet brokerages. Fidelity Investments followed.
E-Trade performed the worst with customer satisfaction, but its rank in the annual report has improved over time.

Insuring investments
See if your brokerage product has insurance protection.
Insurance protection for brokerage products protects investors against insolvency of the financial institution, but it doesn't compensate for investment losses or bad investment decisions.
The Securities Investor Protection Corp., or SIPC, is the agency that reimburses investors with assets in bankrupt and financially troubled brokerage firms to a limit of $500,000 per customer, including a maximum of $250,000 for cash claims. Financial institutions may have insurance over and above the coverage it has as a member of the SIPC, but this also would only protect against insolvency.
Regardless of the brokerage company you choose, remember that you can consult with a fee-only financial adviser to ensure that you’re comfortable with what you’ve invested in and the risks you face with your investments.

Friday, July 22, 2011

3 shortcuts for low maintenance investing

Brokerage Accounts:
How to automate investing
Investing doesn’t have to be complicated, and the beauty of mutual funds is that they simplify investing.
Below are the pros and cons of target-date funds, index funds and lifestyle funds, popular shortcut plans that let investors earn yields without constantly tweaking their portfolios.

1) Target-date funds
The target-date fund is named by its retirement year, or the year you plan to start withdrawing money from the fund. As the date nears, the fund’s asset allocation shifts to become more conservative, and adjustments happen automatically.

These funds can charge high fees, so try to find a fund with an expense ratio of 1 percent or less. They also tend to be light on international stocks. The typical target-date fund has about 20 percent invested overseas, but aim for 30 percent or even more. There are an increasing amount of good foreign businesses, and you don’t want to limit your portfolio’s growth by not having much exposure to foreign stocks.

2) Lifestyle fund
Also known as asset allocation funds, lifestyle funds offer a conservative, moderate, balanced or aggressive investing approach.

These funds let investors choose funds based on their own risk-and-return preference, and they offer broad diversification in one fund.

Investors must remember to adjust these funds, but they don’t have to tweak them too often. It may be a matter of scaling down aggressive investments every 10 or 15 years.

 3) Index fund
An index fund follows a particular market index, such as Standard & Poor’s 500.
This breed of mutual funds is typically inexpensive because investors aren’t paying for a fund manager.
Without a manger actively moving money into well-performing sectors, though, investors may not be pleased to see index funds passively following the market, both up and down.

Not all index funds are diversified, so make sure your index fund is broad enough, and don’t buy an index fund for a specific industry group.