At both federal and state levels, financial institutions are governed by laws that protect consumers against unfair and unscrupulous treatment in the banking and finance sectors. In addition, guidelines are in place to combat fraud and monopolistic behavior, helping to ensure the smooth running of the free-market economy.
Granted, catastrophic historic events — such as the 2008 global financial crisis — occur despite the oversight of robust financial regulatory agencies. Because of this, laws and regulations are constantly being examined and updated to finesse the banking and finance legal framework.
Read on to understand more about finance watchdogs, their roles, and how regulations work to protect the public and the economy from fraud and illicit practices.
What Is Financial Regulation?
Financial regulation is a set of laws, rules, and policies set by governing institutions. These are designed to keep your money safer. Specifically, they aim to maintain confidence and stability in the financial system by eliminating fraud and monopolistic behavior.
In the United States, governing bodies try to balance the need for oversight with a free-market economy, which can be a challenging endeavor.
Why Financial Regulations Are Important
Without regulations, consumers have no protections. They might be subject to fraud, sold bad mortgages, and charged high interest rates and fees on credit cards. Large companies could create monopolies or duopolies, which allow them to control prices.
Laws and policies prevent companies from gaining too much market control and stifling competition, which threatens the free market economy. Regulations also prevent financial institutions from taking risks that put consumer funds in jeopardy.
Here’s a brief history lesson that shows how lack of regulation can negatively impact daily life: The 2008 financial crisis was precipitated by deregulation and the repeal of the Glass-Steagall Act of 1933. This allowed financial institutions to engage in risky hedge fund trading. To fund their investments, the banks created interest-only loans for subprime borrowers, which contributed to more home purchases (including to buyers who would not have otherwise qualified) and quickly rising prices. This created a housing bubble, and millions of people were left bankrupt and couldn’t sell their homes when home prices then plummeted.
But too much regulation can also be a threat to an economy. In a free-market economy, prices are largely determined by supply and demand. Competition among suppliers tends to keep prices at bay as they each try to grab market share.
If regulations become too onerous and costly, companies may use up capital to comply with federal rules. That means they aren’t using those funds to create innovative products. In some cases, specific industries or groups manage to influence regulators and persuade them to introduce or eliminate laws that benefit them and not their competitors.
Types of Financial Regulations
Different agencies focus on the safety and soundness of products and services, transparency and disclosure, standards, competition, and rates and prices for different entities. Here’s a closer look at some of the most important regulations to be aware of:
• Stock Exchange Regulations Laws and rules for stock exchanges ensure that the pricing, execution, and settlement of trades is fair and efficient.
• Listed Company Regulations Listed companies (public companies) are required to prepare quarterly financial statements and submit them to the Securities and Exchange Commission (SEC) and to their shareholders. Investors use this information to inform their trades.
• Asset Management Regulation Financial advisors and asset managers must follow strict rules set by financial services regulatory bodies so that clients are treated fairly and not defrauded. Any company that provides investment advice is considered an investment advisor, and the SEC oversees investment advisors with more $110 million in assets under management (AUM).
• Financial Services Regulation Banking and financial institutions must follow specific guidelines to ensure a functioning banking system. These rules are enforced by The Federal Reserve Board (the Fed), the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and the Federal Deposit Insurance Corporation (FDIC).
Recommended: What Is a Fiduciary Financial Advisor?
Types of Financial Institutions
There are a wide variety of financial institutions in America, some of which you may be familiar with. Here’s the rundown:
• Central banks, like the U.S. Federal Reserve, watch over the country’s monetary policy.
• Retail banks are probably what most people are familiar with. These are banks where the general public can have checking accounts and savings accounts, loans, and other financial services.
• Commercial banks are similar to retail banks (above) but they serve the business community. Large banks may act as both commercial and retail banks.
• Credit unions are similar to banks but they are nonprofits, and members are part owners of them. They offer the same kind of services as banks but may tailor themselves to specific communities.
• Community development financial institutions (CDFIs) are financial institutions that work to build financial knowledge, services, and wealth in communities that are less advantaged.
• Savings and loan associations are organizations that use savings to create housing loans.
• Brokerages manage securities trading (say, stocks and exchange-traded funds, or ETFs), which are regulated though not insured.
• Insurance companies help both businesses and individuals protect themselves from property loss and may provide services such as loans.
• Investment companies function by issuing securities to both businesses and individuals who seek to raise capital.
• Mortgage companies offer home loans and may also manage commercial real estate.
What Is a Financial Regulator?
A financial regulator is an organized governmental or formal body that has the jurisdiction to oversee other entities, such as stock markets, banks, and asset managers. Their mandate is to ensure fairness, protect the public and institutions from fraud, and to facilitate a well-functioning financial sector.
Examples of financial regulators are the Fed, the Securities and Exchange Commission (the SEC), and the Financial Industry Regulatory Authority (FINRA).
How Are Financial Institutions Regulated?
Banks and financial institutions are regulated by the Fed, the OCC, the CFPB, and the FDIC, while asset management companies and stock exchanges answer to the SEC and FINRA. (Also worth noting: Individual stock brokers, investment bankers, and other professionals likely need FINRA securities licenses.) State agencies may enforce regulations on financial institutions, notably insurance providers.
Each of these organizations requires documentation from financial institutions and companies that show compliance with laws. For example, listed companies have to submit quarterly financial statements to the SEC. If they fail to do so, they may be charged with “Failing to Comply” and may lose the ability to trade their shares on the stock market and be forced to pay penalties.
Recommended: FINRA vs. SEC: How are they Different?
The Most Common Financial Regulatory Bodies
The following is a list of the more recognized regulatory agencies and a brief description of what each one does.
The Federal Reserve Board (FRB)
The Fed is the central bank of the United States. As such, it ensures the U.S. economy functions effectively. The Fed is in charge of monetary policy and has the power to increase or decrease interest rates or to instruct banks on the quantity of reserves they must maintain. The Fed also monitors financial systems and their impacts, facilitates efficient settlement of U.S dollar transactions, and upholds laws that protect consumers.
The Federal Deposit Insurance Corporation (FDIC)
The FDIC was created by Congress to support the U.S. financial system. The FDIC insures deposits and monitors financial institutions and their compliance with consumer protection laws. The FDIC also manages bank failures, though they occur very rarely.
The Consumer Financial Protection Bureau (CFPB)
The is a relatively new agency that implements and enforces Federal consumer financial law. CFPB regulations protect consumers by making sure financial products and services are “fair, transparent, and competitive.”
The National Credit Union Association (NCUA)
The NCUA was created by Congress in 1970. The association insures consumer accounts with credit unions with up to $250,000 of share insurance. Enforcement tools of the association include letters of understanding and agreement, administrative orders, and consent orders.
The Securities Exchange Commission (SEC)
. The SEC strives to maintain the public’s trust in the capital markets by insisting on fair practices. Various acts have been passed over time including the Securities Act of 1933, the Sarbanes-Oxley Act of 2002, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The Commodity Futures Trading Commission (CFTC)
The CFTC was created in 1974 to oversee commodity trading in the agricultural sector. Commodity trading has been subject to government regulation since the 1920s. The CFTC supervises and monitors commodity traders and market activity. The commission investigates and prosecutes wrongdoers and educates customers about their rights and how to avoid fraud.
Recommended: What Are the Difference Between FDIC and NCUA Insurance?
How Financial Regulators Help Banking in the Way We Know Today
The banking and financial systems operate well under current regulation, but what about digital banking? Digital banking is a recent innovation, and existing banking laws and regulations generally apply to digital start-ups and fintechs. However, there are some regulatory frameworks specifically for digital banking.
An example of protection for digital banking consumers is Electronic Know Your Customer (e-KYC), which is used for digital onboarding and checks that a customer is who they say they are to avoid fraud and money laundering. E-signature is a way for customers to validate transactions remotely.
Another instance is the Electronic Fund Transfer Act (Regulation E) which aims to make applicable electronic transactions compliant with regulations as well as have “readily understandable” consumer disclosures.
Recommended: Online Banking vs Traditional Banking: What’s Your Best Option?
The Takeaway
Financial services regulatory bodies like the Fed, the FDIC, and the SEC oversee the banking and finance sectors in the United States. State agencies also play a role. Though many consumers are not aware of the details, these regulatory bodies have jurisdiction over stock markets, commercial and retail banks, investment banks, and asset managers. Their mandate is to ensure fairness for consumers, ensure entities comply with fraud protection rules, and to protect the financial sector and free-market economy.
Which is all good, of course. But if you are looking for a great bank for your personal accounts, see what SoFi offers.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.
FAQ
Who regulates financial institutions in the United States?
In the United States, financial institutions are regulated by the Fed, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the SEC, FINRA, the CFPB, the NCUA, and the CFTC. State agencies also enforce regulations on financial institutions, especially insurance providers.
What are regulators in finance?
Finance and banking regulators are state- and government-appointed bodies that protect the safety and fair treatment of consumers. They also ensure smooth operations of the finance and banking sectors, the backbone of the economy.
Who regulates investment banks?
U.S investment banks are regulated by the SEC. For regulatory purposes, investment banks were declared separate for commercial banks following the passing of the Glass Steagall Act of 1933.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
I’ve been investing nearly 25 years, long before online brokers came on the scene. During that time I’ve used several of the best online discount brokers, including Scottrade, OptionsHouse, and even Vanguard’s brokerage services. Based on that experience and a lot of research, I’ve compiled this list of the top options.
Note that I have accounts at each of these firms and have personally tested their trading platforms, research, and other tools. Here’s a quick look at the top brokers.
Compare Discount Brokerage Accounts
Best Online Discount Brokers Firms of 2023
TD Ameritrade: Ideal for more experienced traders looking for a rich set of tools and resources.
E*TRADE: offers trading platforms and tools for any investment style
Ally Invest: Best for new investors and those looking for a very easy website to navigate.
Fidelity: Best for those looking for a robust broker with offices nationwide.
You Invest by J.P. Morgan: Best for free trades and cash bonuses
Over the years I’ve learned three important things about brokerage firms.
First, there are a lot of them. You’ve probably heard of many discount sites that allow you to trade stocks online, but I’m guessing there are a lot of online brokers you’ve never heard of (Sogotrade may be one example).
Second, while on the surface they can all seem similar, when you dig deep into what these brokers offer, you’ll find big differences. For example, not all of them offer the same account types. With some you can’t buy mutual funds, while others offer more mutual funds than most. And the stock trading tools available to you vary from one discount broker to the next.
And the third thing I’ve learned is that the cost of these discount firms can be tricky to understand, and in the end, may not be the most important factor. Because I watch every dime we spend, it may seem odd that cost isn’t the most important factor to me (after all, we are talking about “discount” sites, not full-service brokerage firms). The reality, however, is that unless you are an active trader, the cost of a few trades a year will be small.
Summary Of The Best Online Discount Brokers
TD Ameritrade
The now least expensive discount broker on our list, TD Ameritrade, offers some of the best online trading tools. Its platform “Trade Architect” is my favorite portal to use, specifically designed for casual investors like myself. If you’re looking for a more hardcore approach, they also have a thinkorswim platform that offers more data, more 3rd party research and more functionality.
Again, decided to cater to both casual and advanced investors by creating two separate mobile apps.
TD Ameritrade Mobile (for the casual investor)
Mobile Trader (for the advanced investor)
TD AmeritradeSummary:
Trade Stocks: $0 flat fee
Margin Rates: -0.75% to +1.25% of a base rate (base rate = 8.25% as of 11/12/2020)
Broker Assist Fee: $25.00
Mutual Funds (Load): $0
Mutual Funds (No Load): $49.99
Minimum Deposit: None
Sign up Bonus:N/A
For more information check out our TD Ameritrade review or visit TD Ameritrade.
E*TRADE
E*TRADE has been on a buying spree. Back in 2014 TradeMonster and OptionsHouse merged. Now E*TRADE has acquired the combined entity. E*TRADE offers trading platforms and tools for any investment style. It offers low costs even for infrequent traders, like myself. E*TRADE also offers E*TRADE Pro for active traders. And of course, it offers an excellent mobile experience.
E*TRADE Summary:
Trade Stocks: $0
Trade Options: $0 ($0.65 per contract or $0.50 per contract w/ 30+ trades per quarter)
Margin Rates: Ranges from 7.00% to 10.50% based on debit balance
Mutual Funds: $0 to $19.99 per trade
Read More: E*TRADE Review
Ally Invest
I’ve banked at Ally for years. Its website is one of the easiest to use among all banks, including online banks. Its fees are low to non-existent, and its banking rates are some of the best you’ll find on deposit accounts. So it was no surprise that Ally brought the same consumer-friendly approach to investing.
At Ally Invest stock and ETF trades are just a flat fee of $4.95. For you options traders out there, Ally charges just $0.65 per contract plus a $4.95 base. If you have a $100,000+ average daily balance and/or more than 30 trades per quarter the cost per stock or ETF trade drops to $3.95 and options contracts fall to $0.50 + $3.95 base. It’s hard to imagine a lower cost.
Ally also offers a Cash Enhanced Robo Portfolio. Like other robe-advisors such as Betterment, Ally Invest manages the portfolio, including dividend reinvestment and rebalancing. Ally charges 0% for the service. The minimum investment is just $100.
Capital One Investing
Formerly ShareBuilder, Capital One Investing offers a full range of trading services. In addition to online trading, it also offers managed portfolios. While its fees are generally reasonable, its managed portfolios require a $25,000 minimum investment and charge 0.90% of assets under management. Due to the fees, we don’t recommend Capital One Investing’smanaged portfolio.
Capital One Investing Summary:
Trade Stocks: $6.95 flat fee
Trade Options: $0.75 + $6.95 base
Margin Rates:5.20% to 8.20%
Mutual Funds: $0 or $19.95
Bonus: Up to $600 based on the amount of deposit
Merrill Edge
Merrill Edge is one of my favorite platforms. In addition to online DIY investing, they offer a managed portfolio. You can invest with an advisor, if you so choose. And the website is incredibly easy to use.
Managed portfolios require a $5,000 minimum and cost 0.45% of assets under management. While this fee isn’t the lowest, it’s reasonable for those looking for some extra help.
Trade Stocks: $6.95 flat fee
Trade Options: $0.75 + $6.95 base
Margin Rates:5.50% to 9.625%
Mutual Funds: $0 or $19.95
Bonus: Up to $600 based on amount of deposit
How Much Will You Pay To Buy And Sell Equities Online
All of the firms make a point to advertise how much you pay to buy or sell stocks, mutual funds, options, or other equities. Today most trades at discount sites run from about $2.50 to $12 per trade. The key to remember, however, is that many of these firms charge additional fees, depending on how you use your account. These additional fees may include fees for large buy or sell orders, fees to buy or sell stocks trading at less than $1, account maintenance fees, account inactivity fees, and of course interest if you buy on margin.
Because these fees vary among discount brokers, the starting point is to understand how you will use your stock trading account. Will you trade frequently or just once or twice a month (or quarter)? Do you want to set up an automatic investment plan? Will you be buying stocks and mutual funds, or do you also plan to trade options? The answers to these questions will help you narrow the selection and ultimately pick the best broker for you investing needs.
Factors To Consider Other Than Cost
But just like most anything we buy, the cost is just one of many factors to consider. And the same is true when selecting a discount broker. So what are the factors besides cost that we should consider when selecting a discount stock broker? There are several, and they include ease of use, customer service, types of accounts offered, investing tools, type of investments you intend to buy, and account minimums. I’ve highlighted these and other factors below in the summary of the best online discount brokers. But just like cost, it’s important to know your investing goals when you evaluate your options. For example, account minimums may be a non-issue for you if you plan to invest a significant amount of money. Likewise, if you are looking for a specific account time (like an IRA), you can quickly eliminate those discount stock brokers that do not offer that account type.
Discount Broker Consolidation
Several brokers have acquired other online trading platforms. Ally Invest was previously TradeKing, until the online bank purchased the broker in 2016. TD Ameritrade has entered into an agreement to purchase Scottrade. E*TRADE acquired OptionsHouse.
The flurry of acquisitions has left the industry in a state of flux. How smoothly will customer accounts transfer to their new home? How will the loss of competition in the space affect fees and features?
Time will tell. As the dust settles, we’ll continue to update this list.
Rob Berger is the founder of Dough Roller and the Dough Roller Money Podcast. A former securities law attorney and Forbes deputy editor, Rob is the author of the book Retire Before Mom and Dad. He educates independent investors on his YouTube channel and at RobBerger.com.
Investing in the stock market has never been more accessible than it is today. Thanks to a wide array of online brokers, you can now trade stocks, ETFs, and other securities right from the comfort of your own home or even on the go. But with so many options available, how do you choose the right one?
We’ve broken down the top online brokers for stock trading, considering factors such as cost, user interface, customer service, and the range of available investments.
Whether you’re a seasoned investor or a beginner just looking to dip your toes into the financial markets, our guide will help you navigate this essential decision. Let’s get started!
7 Best Online Brokers
Check out our list of 2023‘s best stock trading platforms. You’ll find all the details you need in this accessible guide so you can get right to the good part: starting your trades.
Robinhood
Robinhood is a trading app that provides commission-free options, ETF, and cryptocurrency trades. For a long time, the company stood out as one of the few online stockbrokers offering commission-free trades, but it has become more common in the past year.
Robinhood is still one of the best online brokers for anyone looking to get started with investing. And it’s still one of the few apps that allows you to trade cryptocurrency.
Many people like Robinhood for its simplicity. There is no account minimum to get started and no annual fees. In addition, the company offers a web-based and mobile app and customer support options.
However, a common complaint about Robinhood is that the company’s offerings are very light on the research. And while the app is easy to use, there is very little offered in customizations.
Learn more by reading our full Robinhood review.
Charles Schwab
Charles Schwab requires you to start with a bit of skin in the game, with a minimum opening deposit of $1,000.
You can, however, check for promotions that often allow you to waive the minimum if you sign up for monthly $100 deposits. It’s an easy entry point for beginning trade enthusiasts.
When you’re ready to start trading with Charles Schwab, you can enjoy lower costs of just $4.95 per trade and $4.95 plus $0.65 per contract for options trading.
ETF lovers will appreciate the 200+ commission-free funds in addition to 3,000+ mutual funds with no transaction fees. In addition, you get to skip any kind of annual or inactivity fee on your account, but it’s $50 if you ever decide to close your account.
While you can choose from two different trading platforms, StreetSmart Edge is the more sophisticated version for frequent stock traders.
Don’t let the easy customization fool you. You can perform in-depth research and monitor your stocks with features like streaming market data and your account buying power.
Additionally, they provide countless reports, from its own equity ratings to third-party data from industry stalwarts like Morningstar, Market Edge, Capital IQ, and more.
For access to all of this at your fingertips anytime, anywhere, the mobile app carries just about all the same features as the web version.
Data-centric traders could definitely gain many insights by choosing Schwab for their online stock trading.
Fidelity
Fidelity may require a rather hefty minimum deposit of $2,500 but makes up for it with its attractive commissions.
It’s just $4.95 for each trade and the same amount for options, plus $0.65 per contract. This is a recent drop, so if you previously discounted Fidelity, it’s time to take a second look.
Do you want extensive NTF mutual funds? You’ll find about 3,600 with Fidelity. There are also about 91 commission-free ETFs, which is certainly encouraging but not the most we’ve seen.
One interesting feature with Fidelity is that you can do forex trading along with more standard securities. Like many of the brokerages we’ve reviewed, there are no account fees or inactivity fees.
Looking for a robust trading platform?
Check out Fidelity’s Active Trader Pro. To get access, you will need to make at least 36 trades in a 12-month period. If you fit the bill, you’ll get a fully customizable account with real-time streaming and market updates.
You can also look at historical trends and use the Strategy Ideas tool. It can even help you craft an exit strategy when the time comes.
In terms of additional research, Fidelity actually gets its research from over 20 firms, such as Recognia, McLean Capital Management, and Ned Davis. You can even get an aggregate picture from all the data available through Fidelity’s Equity Summary Score on each stock quote page.
Merrill Edge
Owned by parent company Bank of America, you can actually access all of your accounts from the same login if you’re a B of A customer.
This can be a huge draw for some, but Merrill Edge comes with both pros and cons, just like any other trading platform.
Let’s take a look.
First, Merrill Edge has excellent customer service and powerful research and trading tools.
Commissions are somewhat high, coming in at $6.95 for stock trades plus an extra $0.75 per contract for options. They offer 2,000+ NTF mutual funds, but unfortunately, don’t have any commission-free ETFs. This may be a deal-breaker for some traders.
You can, however, qualify for 30 commission-free trades on individual stocks or ETFs each month by meeting a balance minimum.
You can qualify if you have at least $25,000 in either a Merrill Edge self-directed account or a Bank of America cash deposit account.
E-Trade
You will need at least $500 to open up an E-Trade account, but many traders agree that the volume discounts and easy-to-use platforms are well worth it.
In fact, each platform appeals to two types of investors: beginners and more seasoned pros. So, it’s a great place to start with a bit of cash, which also allows you to take advantage of more sophisticated tools as needed.
But, there is a catch.
To upgrade from the basic E-Trade Web platform to the E-Trade Pro platform, you’ll need either a large account or an active trade history.
So, you’ll either need a minimum of $250,000 in your account or make 30 or more trades per quarter. If you do make that amount of quarterly trades, you can still qualify for some other benefits as well — including discounted commissions.
Just how much?
For stock trades, your commission per trade will drop from $6.95 to $4.95. For options trading, it’s typically $6.95 plus $0.75 per contract, but for active traders, your fee drops to $0.50.
And while you’ll enjoy 100+ commission-free ETFs and 2,500 no-transaction-fee mutual funds, any others cost $19.99.
Ally Invest
Known for their great customer service that’s available 24/7, Ally Invest is one of the best online brokers providing low barriers to entry in the trading game.
There are no account minimums and low commission fees. Not only are stock and ETF trades just $4.95 each, but you can also receive a discount when trading in volume.
The bottom line for getting cheaper trades?
Make either 30+ trades per quarter or keep a minimum of $100,000 in your brokerage account. That drops the commission fee to just $3.95 per equity trade. The standard options trade of $4.95 plus $0.65 per contract drops to $3.95 plus $0.50 per contract for active traders.
In addition to the traditional securities found at most online brokers, Ally Invest also offers forex and futures trading.
You can take advantage of free data if you make at least one forex trade within a 90-day period. Instead of paying a trade commission, you’ll instead be charged on your forex trades based on the spread markup.
What kind of platform can you expect from Ally?
There’s just one web-based trading platform, so you can log in from any device. Like most other online trading platforms, Ally’s gives you live-streaming of quotes and data plus a dashboard you can completely customize.
You can also access your brokerage account through their iPhone or Android mobile app.
Ally also shines when it comes to investing tools. Options traders, for example, can utilize the pricing calculator to compare current prices to forecasts.
You can also pick your own criteria within the strategy scanner to help identify various options strategies.
Interactive Brokers
Beginners beware: Interactive Brokers is an advanced online broker with a high account minimum to the tune of $10,000, so don’t jump into this one until you’re ready.
But if you’re 25 or younger, you can open an account with just $3,000. Still, you need to know what you’re doing because Interactive Brokers doesn’t house a huge resource pool for beginners.
Unlike most other online stock brokers on this list, Interactive Brokers charges commissions per share rather than per trade. So while you can get a volume discount, the standard stock trade costs are $0.005 per share.
There’s a minimum charge of $1 and a maximum of 0.5% of your trade value. Options trades also carry a $1 minimum and charge $0.70 per contract.
You may also be charged fees for certain situations. For example, if you have an IRA, you’ll be charged a quarterly fee of $7.50. If you’re inactive in your account, you may be charged a fee between $3 and $20.
Interactive Brokers has about 30 ETFs to choose from that you won’t pay commissions on. There are, however, almost 3,000 NTF mutual funds available for trading. They also offer forex trading, but you’ll need at least $10 million in assets to access this feature.
Best Online Stock Trading Platforms FAQ
How much do online brokerage firms charge?
For active traders who want to minimize costs, an online stockbroker can save you a lot compared to a traditional brokerage. When you go with a full-service brokerage, you’re usually charged a percentage of the trade amount. With a discount brokerage account, you pay a low commission on every trade.
But with an online brokerage account, you typically get charged a flat fee for each trade, which can save you a lot over the long run. Depending on the type of transaction, you can expect to pay anywhere between $5 and $20 per trade.
What is the best stockbroker for beginners?
Most beginner traders incur losses because of several factors, including choosing an unsuitable online broker. Consequently, it is advisable to start with a platform designed to make trading easier. Some factors to consider when choosing an ideal platform for beginners may include:
Dedicated advisers to help you make better decisions through comprehensive analysis and one-on-one guidance.
A demo account with which you can practice as you learn and prepare for real-life trading.
A dedicated customer support desk to help you overcome complications with the platform or the markets.
Learning materials to familiarize you with the platform and the markets (fortunately, most offer updated learning materials).
A diverse range of trading options.
An easy-to-use trading interface.
Affordable fees and account minimums.
This guide includes excellent online brokers for beginners, such as Robinhood and Charles Schwab. However, don’t be afraid to cast your net further as you look for the ideal platform for your needs.
Which online trading platform is best?
All online trading platforms advertise themselves as the best. However, some offer better trading options and overall superior quality of services than others. Additionally, you will find that some platforms suit your investment needs and preferences better than others.
Consequently, it is advisable to consider what each platform offers based on your needs. Some questions to ponder when choosing an ideal online brokerage platform may include:
What do I know about online trading?
Will I need someone to guide me through some (or all) of my trades?
How much money do I need to invest?
Can I trust the platform with my money?
For example, you will need a beginner-friendly online broker if you are new to trading. Additionally, a platform that requires a high account minimum may not be right for you if you don’t have a lot of money to start with. You will also benefit from our guide on choosing a suitable online broker as you continue reading.
What is the most profitable trading platform?
It is true that some trading platforms offer better investment options and terms than others. However, it is a common misconception that some platforms can make you more money than others. While some platforms can save you money, but they will not automatically make you more money.
How much money you make on any trading platform depends on your overall trading strategy and accuracy. Online brokers don’t influence market directions—the markets do!
Here are some tips on how to develop a winning and profitable trading strategy:
Take classes about stock trading (and investment in general) before diving in with the sharks. You want to continue to learn throughout your trading career.
Always have a trading plan, including comprehensive money management criteria for every trade. It is also a general rule of thumb never to trade more than you can afford to lose.
Leave emotions out of trading and treat it like a business (one that can change your life if managed well).
Take advantage of trading tools and other technologies to improve your accuracy and timing.
Know when to stop trading and always use a stop loss.
This FAQ includes a comprehensive guide on choosing an ideal online trading platform. Fortunately, there are hundreds of high-quality online brokerage platforms.
Which online broker has the lowest fees?
Some online brokers charge exorbitant fees, while others charge pennies. To this end, you can save thousands of dollars per year by choosing an online broker that offers affordable fees.
With such variation, it is critical to identify your broker’s fees for different services and do the math. Most people focus on commissions. However, it’s also important to consider charges such as margin rates, finance rates, spreads, and conversion fees.
Traders looking to work with online brokers charging minimum fees may be interested in discount brokers. This is because a discount broker executes orders at a fraction of what other stockbrokers charge. As a result, discount brokers are wildly popular and constitute a considerable portion of the fintech industry.
However, it is worth noting that discount brokers don’t offer a full range of services. Most notably, they don’t provide investment advice, unlike full-service brokers. Consequently, the cost savings may not be worth it unless you are an excellent trader with a winning strategy.
What does a stockbroker do?
A stockbroker executes orders in the stock market on behalf of clients like yourself. Stockbrokers also offer their clients sound financial advice, but they are obligated to follow their clients’ directions. They are also commonly called investment advisors or registered representatives.
You must be fully qualified and licensed to work as a stockbroker. Additionally, you must be a member of a stock exchange (such as the New York Stock Exchange) to buy or sell on their platforms. Consequently, not everyone can buy or sell directly from the platform. Stockbrokers function as the go-between as their license automatically qualifies them as members.
Interestingly, many stockbrokers today mainly specialize in financial advisory and planning, thanks mostly to the rise of online stockbrokerage platforms. These platforms have eased access to the stock markets. Essentially, anyone with access to the internet and genuine interest in the markets (and some capital) can start trading in minutes.
Should I hire a stockbroker?
Trading stocks and other securities has never been easier, thanks mainly to the rise of online brokerage platforms. To this end, it is common for many people to view stockbrokers as redundant. However, they are not. Even experienced traders ensure that they always have a stockbroker on speed dial.
So, why should you hire a stockbroker? Here is an overview of three irrefutable reasons why a stockbroker could be invaluable:
First, stockbrokers can read the markets with accuracy. They can also give you tips on profitable trades before the rest of the market can dilute the trend.
Second, stockbrokers can manage all of your investments if you don’t have the time to do it yourself. This allows you to facilitate a passive investing strategy and potentially lucrative passive income.
Finally, stockbrokers can give you deep financial advice that extends beyond investing. This can help you better manage your personal and business finances.
Ultimately, a stockbroker’s services pay their fees several times over if you put their advice to good use. However, it is prudent to pick a competent and intelligent stockbroker to ensure that you get sound investment and financial advice.
How do I choose an online brokerage?
Online brokerage platforms make it easy and affordable for anyone to trade stocks and other securities. There are hundreds of online brokers, and some offer better terms and services than others. Hence, it is advisable to choose your online brokerage platform wisely. Here is an overview of three factors to consider when choosing one:
Account Fees & Minimums
All online brokers charge fees to use their platforms, just like you would pay a stockbroker. Additionally, many online brokerage firms require their clients to maintain a minimum amount of money in their accounts. Therefore, it is advisable to ensure that the amounts in both cases are low and affordable.
Investment Options
It is always advisable to diversify your investments across multiple securities and other investment options to spread (and minimize) risks. Consequently, it is vital to ensure that your chosen online broker provides access to as many securities as you need. Some of the main investment options include stocks, mutual funds, ETFs, bonds, and cryptocurrencies.
Support
Trading stocks can prove complicated, and most people find themselves wishing that they had a professional to guide them. Fortunately, many online stockbrokers offer access to individual stockbrokers for one-on-one investment and financial advice.
Stock Trading Fees Explained
You have to pay to play in the stock market, metaphorically speaking. You pay for the services provided by online brokers or brokerage platforms when you trade stocks. Stock trading fees come in varying types, and some of the most notable ones include:
Commission
Most brokerage platforms charge a commission for every trade, which is usually a dismal fraction of the trade’s cost. The commission can be charged as a flat fee or based on the volume of your trades. However, it is worth noting that more and more online brokers are eliminating commissions.
Spread
The spread is the difference between the bid and ask prices. Ideally, you would incur a loss if you bought and sold a trade simultaneously. This loss depends on the difference between the sell and buy prices.
Finance Rate
A finance rate refers to the cost incurred when you hold a leveraged position for longer than 24 hours. A leveraged position essentially is borrowed money, and your broker will charge you interest for this loan in the form of a finance rate.
Margin Rate
Trading on margin entails trading using money borrowed from the broker. The broker will also charge interest on this money in the form of a margin rate.
Conversion Fee
Do you need to convert your money to another currency to start trading? The broker will charge you a small conversion fee every time you convert currency for deposits or withdrawals.
How much money do you need to start investing?
It is easier than ever for folks to start investing, and often you can start with as little as $500. Some online stock brokers don’t require any account minimums at all. Where they do, the minimum investment amount will depend on your broker and the type of investment.
For example, most mutual funds have minimum investments of around $1,000, so if mutual fund trades are a priority for you, keep that in mind.
Is Stock Trading Safe?
While it is generally safe to trade stocks, that doesn’t mean there aren’t risks involved. The best trading platforms will work hard to keep you informed and minimize those risks.
As an online trader, it is also your responsibility to practice good security habits. Use the same security steps with a brokerage account that you would with your bank account. Additionally, always use common sense when trading.
What Are the Risks of Online Trading Platforms?
By virtue of being an online activity, there are several risks involved when you trade with online stock brokers. Let’s take a look at the most common risks:
Identity theft: As is the case for any online account you use, it is possible for your brokerage account to be hacked by scammers who obtain your personal identifying information. This is why it’s always vital to keep your passwords secure. You should also use two-factor authentication wherever possible to protect your accounts.
Computer viruses and malware: It’s important to ensure that the computer you use to access your brokerage account is always clean, secure, and free of malware. Hackers can use spyware to gain access to your passwords and personal information. So, protecting yourself means using a quality anti-virus program and performing routine checks.
Data breaches: Data breaches are a major risk for companies and customers alike, and unfortunately, they seem to be on the increase. As a customer, the most critical step you can take to protect yourself here is to only do business with reputable companies. Ideally, you want to choose one that has never had a previous data leak.
Phishing schemes: This often comes in the form of an email or text message which claims to be from your brokerage firm, but is actually an elaborate scam. Always pay close attention to the details in any communication you receive from your online stock broker. Never click on any links until you are certain the sender is legitimate.
Bottom Line
Your online stock broker is your gateway to investing, so it’s not a decision to take lightly. When searching for an online stock broker, it’s important to consider your unique investment needs.
You’ll need to compare costs, available investment options, account types, and how well the stock broker works for your investment style. Any of the online stock brokers above could be a great fit for your investing and trading goals.
In your search for online brokers for stock trading, make sure you take the time to figure out your priorities. Then, you can find a brokerage account that truly serves you. There are a lot of great online stock brokers out there, but being clear about your goals will make it easier to choose.
Ready to get started investing but not sure where to start? We’ve compiled a list of the best online stock brokers for beginners that we recommend for 2023.
Whether it is customer service, affordability, or platform versatility, each of these online brokers shines in its own way.
Be sure to compare the most important differentiators, such as trading costs and account minimums before you make your choice. As a beginner, you may also place more value on educational resources and customer support while you’re still learning the ropes.
6 Best Online Stock Brokers for Beginners
Robinhood
Robinhood is aptly named, offering commission-free stock and ETF (exchange-traded funds) trades. Not just some of the time—all the time.
On top of this, they don’t have an account minimum. If you want to get started trading, there’s no reason to wait. Robinhood also offers fractional shares.
Robinhood has a great mobile app team. It’s so good there’s no reason for you to ever hop on a PC. It takes new investors five minutes to set up and only an hour for them to activate your brokerage account.
By industry standards, that’s pretty fast. (Keep in mind this is a brokerage account, not a Twitter account you’re setting up.)
When you transfer $1,000 to Robinhood, it is available immediately for you to invest. If you upgrade to Robinhood Instant (a free upgrade), any proceeds you make from selling stocks or ETFs can be immediately used to buy stocks or ETFs elsewhere.
Read our full review of Robinhood.
Merrill Edge
Merrill Edge is a great option for beginning investors. You can open an account with $0 minimum investment. They also offer excellent customer service, strong education and research, and low fees.
You can get unlimited free online stock, ETF, and options trades with their Preferred Rewards program, or pay just $2.95 per trade with no trade or balance minimums.
Merrill Edge offers flexible tools with customizable features and the best part is they are there to guide you step-by-step.
They have dedicated advisors who will work with you one-on-one to help you build a comprehensive financial strategy.
Their advisors can give you recommendations based on your needs to help you grow and preserve your wealth.
If you prefer to meet with them in person, Merrill Edge has over 2,000 Bank of America locations where an advisor will be more than happy to work with you.
Charles Schwab
There are only a few online brokers out there where we can honestly say are well suited for both beginning and advanced investors, but Charles Schwab is one of them. It has the tools to satisfy anyone, no matter their level of expertise.
Are ETFs your thing? Charles Schwab offers over 200 commission-free ETFs. Are you an absolute beginner? Schwab objectively selects what it believes to be the best ETF in every category, so you don’t have to go down rabbit holes of information and research.
On top of this, if you are just starting to build your portfolio, Schwab also offers recommendations based on your chosen risk tolerance. Take the safe road and know that your money is in good hands.
If you need to speak with a representative, you may do so no matter the time of day, via phone or online chat. That said, Schwab is a full-service broker that has a pretty large brick and mortar presence. You can schedule an appointment to speak with a representative or attend invaluable workshops.
A downside to Schwab is that they do have an account minimum. While several online brokers we’ve discussed require no account minimums, Schwab does require that its investors maintain at least $1,000 with them.
If you don’t have that, you can have the minimum waived when you sign up for an automatic monthly deposit of $100.
Vanguard
Perhaps one of the best online stock brokers for low-cost investing, Vanguard is frequently utilized by buy-and-hold and retirement investors with high account balances.
Its expense ratios on index funds and ETFs are quite below the national average, so it is the go-to broker for long-term investors.
Retirement-minded investors can find many resources with Vanguard through its website. They list safe and healthy investment options that promise long-term growth.
It also gives helpful hints on where you should prioritize your time and energy if you’re just getting started.
They also have a sophisticated program that can estimate when you’ll be able to retire and can help calculate your monthly expenses (sudden or otherwise) once you do.
If you have some money to invest, you can save by choosing Vanguard. For brokerage accounts with at least $50,000, trades only cost $7 regardless of how big they are. When the brokerage account hits $500,000, trades only cost $2. When it surpasses a million dollars, many trades become free.
Want to make active trades? Keep looking.
If you’re an active trader and don’t have nearly that amount of money lying around, however, Vanguard isn’t the best stock broker. It doesn’t have any software to support its traders (meaning there aren’t any trading tools or platforms to utilize).
Furthermore, investors who frequently trade (say, more than 25 times a year) are penalized with fees (assuming, of course, they don’t have $1 million invested with Vanguard).
Fidelity
With low $4.95 commissions per trade, Fidelity is one of the most affordable online stock brokers, considering what it offers to its customers.
Utilizing top-notch research from over 20 companies, Fidelity provides its investors with some of the best investment advice that money can buy.
It could be a lot of information to wade through, but after a few quick questions, Fidelity can match you up with providers that resonate with your personal investment style.
Though it’s not considered the best customer support in the industry, Fidelity still offers some pretty sharp service for its customers. Investors can meet with representatives in physical branch locations, as well as attend investor seminars throughout the year for free.
The seminars cover a wide array of topics, such as Social Security and technical analysis. Plus, if in person doesn’t appeal to you, you can still study and expand your knowledge via webinars.
Looking for a solid online broker? Fidelity is truly among the best.
It offers both online and mobile support, and if you are an active trader, you can even get real-time feeds displayed on your desktop. Each trading platform is intuitive and easy to use and provides tools to help you get a leg up on your competition.
For those interested, Fidelity also offers a premium tool called Wealth Lab Pro, which offers customizable strategies and 20 years of historical data.
Ally Invest
If you’re a seasoned investor, you may never have heard of Ally Invest, but its newness to the scene shouldn’t make you discredit it.
In 2016, Ally invest bought out TradeKing and has only recently emerged into the online brokerage game. That said, it’s quickly become very clear that everything that was great about TradeKing has only gotten better.
Ally offers automated portfolio management and forex trading. There is no account minimum, commissions on trades are $4.95.
Are you a frequent investor?
Ally Invest offers discounts to members who trade 30 or more times per quarter. At that point, the fee drops to $3.95.
Whether you use a PC or a smartphone, Ally has a great online stock trading platform for its users. Trade fast, get current, 24-hour quotes and data, make your own unique dashboard, and get a diverse set of trading tools at your disposal.
Here are some of our favorite helpful features:
Profit-and-loss calculator
Maxit Tax Manager, which informs you of any changes to your taxes based off of trades
Probability calculator to tell you of the likelihood of your desired targets for each share
Worried about trading from work? Don’t be. Ally Invest’s web platform doesn’t require you to download anything.
Simply log in and you are ready to trade. Considering everything they offer online, this is quite an achievement in and of itself.
Why Beginners Should Consider Online Stock Brokers
Diving into the world of stock trading can be both exciting and intimidating. As a beginner, you might have certain apprehensions, especially with traditional stock trading often being associated with experienced and wealthy individuals.
However, with the advent of online brokerages, the investment landscape has dramatically transformed, making it more accessible for everyone. So why should you, as a beginner, consider going the online route? Let’s break it down.
Leveling the Playing Field
Traditionally, stock trading was a complex system with many barriers to entry. It was time-consuming, requiring regular phone calls with brokers, and often demanded a substantial initial investment.
However, online stock trading platforms have simplified this process, allowing anyone with an internet connection to participate in the market. They’ve effectively democratized stock trading, enabling a broader demographic to engage in investment activities.
Cost-Effectiveness
Cost has been one of the biggest hurdles for beginners interested in stock trading. High brokerage fees were once a significant barrier to entry. Online stock brokers have dramatically reduced this burden by offering lower trading fees compared to their traditional counterparts.
Many even offer commission-free trades, which is especially beneficial for those who are just dipping their toes in the investment waters and may not have a significant amount to invest yet.
Flexibility and Control
With an online broker, you get the advantage of real-time trading from the comfort of your home, or anywhere else for that matter. You have more control over your trades, with the ability to review and modify your orders whenever you see fit. This flexibility can be a game-changer for beginners who are still learning the ropes and need the freedom to make adjustments as they see fit.
Access to Tools and Education
Most online brokers provide a wealth of resources to help you understand the stock market better. These resources often include educational articles, webinars, video tutorials, and even simulated trading environments. You can learn at your own pace, apply your knowledge in a risk-free environment, and then proceed with more confidence when you’re ready.
Busting the Myth: Stock Trading is Not Just for Experts
You might be thinking, “Sure, these benefits sound great, but isn’t stock trading still a field best left to the experts?” This is a common misconception, but it couldn’t be further from the truth. While knowledge and experience undoubtedly play a role in successful investing, the barrier to entry has significantly decreased with online brokerage accounts.
They’ve built platforms that cater to investors of all experience levels, with easy-to-use interfaces, educational content, and customer support to guide you through your investment journey. In fact, the rise of online trading has given birth to a new generation of investors who’ve started with little to no knowledge of the stock market.
Choosing Your Online Broker: Essential Criteria to Consider
Selecting an online broker as a beginner can seem daunting. However, by focusing on the right criteria, you can make a well-informed decision that suits your individual needs and goals. Here are the key factors you should consider when choosing your online stock broker.
User-Friendly Platform: Navigate with Ease
As a beginner, the last thing you want is to grapple with a complicated platform while trying to understand the intricacies of stock trading. Hence, a user-friendly interface is essential.
An intuitive platform will make navigation a breeze, allowing you to focus on your investment decisions rather than struggling with complex tools. Look for brokers that offer clear layouts, easy-to-find features, and streamlined processes for trading.
Educational Resources: Your First Step Towards Mastery
Education is paramount when you’re embarking on your investment journey. The best online brokers provide a variety of learning materials, including tutorials, webinars, articles, and even a glossary of trading terms.
These resources can help demystify complex financial concepts, making it easier for you to understand market trends and make informed decisions. Ensure the broker you choose places a strong emphasis on education and continuous learning.
Customer Support: Guidance When You Need It
No matter how user-friendly a platform is, you’re likely to encounter queries or issues that need resolution. This is where robust customer support comes in.
A good online broker should offer responsive, efficient, and friendly customer service, ready to assist you via multiple channels – be it phone, email, or live chat. Remember, as a beginner, having readily available support can be a significant confidence booster.
Fees and Commissions: The Impact on Your Investments
Even the smallest fees can add up over time and eat into your returns. So, it’s essential to understand the fee structure of any online broker you consider. This can include trading fees, account maintenance fees, withdrawal fees, and more. Many online brokers now offer commission-free trades, which can be particularly advantageous for beginners starting with a smaller investment.
Account Minimums: Barrier or Welcome Mat?
Some online brokers require you to deposit a minimum amount to start trading. This can be a hurdle for beginners who are looking to start small. Therefore, finding a broker with low or no account minimums can be a significant advantage when you’re just getting started. It allows you to dip your toes into investing without committing a substantial sum upfront.
Diverse Investment Options: The Power of Choice
While you might start with trading stocks, having a range of investment options can be beneficial as you grow and diversify your portfolio. Look for an online brokerage account that offers a variety of investment products, such as bonds, ETFs (exchange-traded funds), mutual funds, and more. Having these options at your disposal allows for more flexibility in your investment strategy.
Security: Safeguarding Your Investments
With the increasing number of cyber threats, security has never been more critical. You want to ensure that the online broker you choose uses top-tier encryption and security measures to protect your personal information and investments. This can include two-factor authentication, biometric recognition, and advanced encryption technologies.
Tips for Getting Started With Online Stock Trading
Stepping into the world of online stock trading can be thrilling. The possibility of seeing your money grow can be enticing, but it’s also crucial to approach this journey with a strategic and educated mindset. Here are some practical tips to get you started on the right foot.
Understand Your Investment Goals
Before you make your first trade, take some time to understand your investment goals. Are you saving for retirement, a down payment on a house, or your child’s college education? Having a clear idea of your goals will help you make informed decisions about the type of investments you want to make.
Start Small and Gradually Increase Your Investments
As a beginner, it’s wise to start small. You might be eager to dive in, but starting small allows you to get a feel for trading without risking too much. As you become more comfortable and experienced, you can gradually increase your investments.
Diversify Your Portfolio
Don’t put all your eggs in one basket. Diversification, or spreading your investments across a variety of assets, is a key strategy to manage risk. By diversifying your portfolio, you can protect yourself from significant losses if one of your investments underperforms.
Practice with a Demo Account
Many online brokers offer demo or “paper” trading accounts. These accounts allow you to practice trading with virtual money. It’s a great way to learn the ropes, try out different strategies, and understand the dynamics of the market without risking real money.
Keep Emotions in Check
Investing can be an emotional rollercoaster. The value of your investments can go up and down, but it’s crucial to stay calm and stick to your investment plan. Avoid making impulsive decisions based on short-term market fluctuations.
Develop a Disciplined Investment Strategy
Having a disciplined investment strategy means making thoughtful and researched decisions rather than chasing ‘hot’ tips or trends. This strategy involves regularly reviewing and adjusting your portfolio, reinvesting dividends, and not being swayed by market volatility.
Embrace Continuous Learning
The investment world is dynamic and ever-changing. Make an effort to learn continuously about different investment products, market trends, and trading strategies. Take advantage of the educational resources offered by your online broker.
Consult a Financial Advisor
While online stock trading can be done independently, consulting a financial advisor can be beneficial. They can provide personalized advice tailored to your financial goals and risk tolerance.
Frequently Asked Questions for Online Stock Trading Beginners
Here are some commonly asked questions that beginners often have when they’re starting out with online stock trading.
What is a brokerage account?
A brokerage account is an arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through it. Essentially, it’s the account you use to make trades and hold your investments. The brokerage acts as the intermediary between you and the markets.
In a typical brokerage account, you can invest in a wide variety of securities, including stocks, bonds, mutual funds, and ETFs (exchange-traded sunds). There are also different types of brokerage accounts, like individual or joint accounts, retirement accounts, and education savings accounts, each serving different investment purposes and offering varying tax benefits.
Why should I consider online stock trading?
Online stock trading offers a host of benefits, including easy access to financial markets, lower transaction costs, real-time trading, a wealth of educational resources, and the ability to trade at your own pace and convenience.
How much money do I need to start online trading?
The amount needed to start online trading can vary greatly depending on the broker you choose. Some online brokers require minimum deposits, while others do not. It’s possible to start trading with a small amount, but remember that it’s crucial to only invest money that you can afford to lose.
What are the risks of online stock trading?
Like any investment, online stock trading comes with risks. The value of your investments can fluctuate based on market conditions, which can lead to losses. It’s also possible to lose money due to poor investment decisions. It’s important to educate yourself, develop a solid investment strategy, and consider diversifying your investments to manage these risks.
What is a stockbroker?
A stockbroker is a professional who executes buy and sell orders for stocks and other securities on behalf of clients. Online stock brokers offer platforms where you can conduct these transactions yourself.
How do online stock brokers make money?
Online stock brokers make money in several ways. Some charge commissions on trades, while others offer commission-free trades but may charge other types of fees, such as account maintenance fees or withdrawal fees. Some brokers also earn money from interest on cash in trading accounts or by lending out securities in margin accounts.
What is diversification?
Diversification is a risk management strategy that involves spreading your investments across various types of assets, such as stocks, bonds, ETFs, etc. The idea is to reduce risk by investing in different areas that would each react differently to the same event.
Is my money safe with online brokers?
Most reputable online brokers are members of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which provide certain protections for investors. However, while these protections can safeguard your money if the brokerage fails, they do not protect against losses from trading.
Are you wanting to invest in the stock market but don’t know where to start? You’re not alone. Buying stocks online is a simple process. But doing the research can be a bit overwhelming if it’s your first rodeo. But don’t fret. Read on for a step-by-step guide on how to buy stocks.
Mastering the Basics: A 4-Step Guide to Buying Stocks for Beginners
Embarking on your stock trading journey can be both exciting and overwhelming. With this concise 4-step guide, we’ll help you navigate the essentials of stock trading, from setting up a brokerage account to making informed decisions on stock purchases.
Step 1: Set Up a Brokerage Account
To buy stocks, you’ll need to apply for a brokerage account. With an online brokerage account, you can transfer funds into your account electronically from a linked bank account to fund any future investment orders. And upon making a purchase the stocks will remain in the account until you trade them.
Types of Brokerage Accounts
The basic types of brokerage accounts are:
Discount Broker
Common amongst online brokers
Similar to a do-it-yourself option with limited support
Minimal fees and commissions
Some don’t have a minimum deposit requirement
Full-Service Broker
Designed to help investors from start to finish with planning and execution of trading goals
Offers extensive support from financial advisers at brokerage firm
Commission or fee-based structure
When analyzing brokerage firms, you want to consider the following:
Minimum deposit requirement: if you’re just starting out, you may only want to invest a small amount to get your feet wet. Once you’re acclimated with buying and selling stocks online, you’ll beef up your stock portfolio. But until you reach that point, a discount brokerage with minimal fees and little to no deposit requirement may be best.
Short term goals: do you plan to hit the ground running? Do you need all the support you can get to maximize your investment in the shortest amount of time possible? If so, a full-service brokerage may be the better choice.
Some of the most popular online brokers include Ameritrade, Charles Schwab, E*Trade, Fidelity, Merrill Edge, Robinhood, and Vanguard.
Direct Stock Purchase Plan
Some publicly-traded companies also offer a direct stock purchase plan (DSPP), which allows you to buy stock from them. This is another way to buy stocks that require using online brokers. Instead, the company’s transfer agent manages the transaction.
Check Out Our Top Picks for 2023:
Best Online Stock Brokers for Beginners
Step 2: Evaluate Your Options
There are tons of individual stocks to choose from. So how do you narrow down your options and select the best fit for your financial situation? You can sift through mountains of financial data inundated with jargon you’ve never seen a day in your life.
A better idea: think about industries or businesses you have a keen interest in. Are there a few that you’d like to own a piece of? If so, start there. Otherwise, you can always ask your financial adviser for data on up-and-coming companies or pay attention to market trends in the media.
Get a Copy of the Annual Report
Once you have a list of top prospects, head on over to the company’s website and download a copy of the annual report. It’s an extensive document that provides an overview of how the company performed in the last year, along with detailed financial reports.
The U.S. Securities and Exchange Commission (SEC) mandates that public companies provide this report to shareholders on an annual basis.
But it’s usually available through the company’s website as well for the public to see. If you’re unfamiliar with any of the terms listed, the broker’s website should have information and resources that can assist.
Monitor the Company’s Performance
You may also want to consider monitoring the company’s performance before making a purchase decision. Steep fluctuations or signs of declining revenues could indicate that it may not be the right time to invest.
(Most brokerage firms will also offer tools and resources to help you stay on top of what’s going on with the companies you’re considering).
Step 3: Get a Quote
You’ll want to pay close attention to the information presented in the quote. Stock quotes, which are represented by ticker symbols that are abbreviations of the company, include:
Bid: highest price per share a buyer wants to pay per share
Offer or Ask Price: lowest price per share a seller will accept per share
Historical information on trading volume
Interactive resources to help gauge projected performance
Contact your online broker to learn more or visit Nasdaq.com to retrieve a real-time quote.
Step 4: Place an Order
Now that you’ve gotten all the technical/admin duties out of the way, it’s time to buy stock. But before you get too excited, it’s important to familiarize yourself with order types.
Market Order
A market order ensures you get the amount of shares requested, even if the asking price is a bit higher than your bid. This is usually the case when your primary concern is the share volume and not stock price.
This type of order is best for investors who are in it for the long haul. Why so? Well, a slight spread, or the difference between the asking price and bid, shouldn’t make that much of a difference over time.
Let’s say you want to buy 75 shares at $150 and the quote states:
Bid: $149 (75)
Ask: $150 (60)
Last: $151 (100)
If the seller agrees to issue 75 more shares at $153, your market order will be for 60 shares at $150 and 15 at $153.
Limit Order
A limit order ensures the broker purchases shares at the desired price point. So there’s a possibility you may not receive the number of shares you want until the price point decreases.
Let’s say you want to buy 80 shares at $160 and the seller is only offering 45 at that price point. If you decide to execute a limit order, you would get 45 shares and wait for sellers offering at least 35 or more shares at $160 to reach 80 shares.
No Guarantees
When you place a limit order, understand that there are no guarantees your order will be filled since market orders are executed first.
If it takes several rounds of trading to get the desired volume of shares, expect a hefty amount of broker fees because commissions are tacked on after each transaction.
In this case, it may be in your best interest to execute a market order and pay a bit more per share since the cost of commissions may wipe out the cost-savings per share of stock.
AON Limit Orders
You should also be mindful of all-or-none (AON) limit orders, which indicate to the seller that you’ll only purchase if the price is at or below the amount of your bid. Furthermore, the requested amount of shares must be offered during that specific bid.
If you want to leave the order on the table for an extended period of time, it can be coded as good till canceled (GTC). The timeframe can span from a few to several months.
Stop Orders
Stop orders are driven by price and are only filled when the requested amount of shares reaches the stop price. There are two types of stop orders you should be aware of:
Stop-limit order: functions like a limit order because it’s only executed at the “stop-price”. However, you may not get the number of shares you want.
Stop-loss order: functions like a market order, but the primary difference is the entire order will only be filled when the price is at or below the “stop level”.
How many shares will you be purchasing?
Before you can execute a market or limit order, you’ll need to decide on the number of shares you wish to purchase. There’s no right or wrong amount, and some newbies prefer to start small and scale up once they’re a bit more comfortable with how stock trading works.
The Next Steps
Kudos to you on your first stock purchase. It’s a great first step toward building wealth and helping secure your financial future.
And even if your first round doesn’t turn out as planned or your experience steep market downturns, don’t throw in the towel right away. Remember why you started and focus on the light at the end of the tunnel, or your future earning potential.
If you are unsure of which stocks to pick, you might want to consider buying mutual funds or ETFs.
Best Online Brokers and Trading Platforms for Buying Stocks
The best online brokers offer low commissions and fees, and great research tools, such as charts and stock screeners. You will also want to choose a brokerage platform that is easy to use and intuitive.
Good customer service is also essential when considering an online brokerage account. Check to see if the broker offers phone and email support, as well as live chat. Here are some of the most popular brokers to look into:
Robinhood is a good choice for buying stocks with zero commissions. It offers a simple mobile app with a limited selection of commission-free ETFs and no-transaction-fee mutual funds.
Charles Schwab offers a comprehensive trading platform with powerful research capabilities. You also get access to a wide variety of financial products, and Schwab offers 24/7 customer service.
Fidelity offers comprehensive research and market analysis tools, low trading fees and commissions, and a dedicated customer service team.
With E-Trade, you can easily invest in stocks and other financial instruments online or on your mobile device. They also offer advanced trading tools and charting.
How to Buy and Sell Stocks FAQ
How do I buy and sell stocks?
You can buy and sell stocks through a stockbroker or online trading platform. A stockbroker can help you with the purchase and sale of stocks and provide advice on the best investments for your portfolio. If you decide to use an online trading platform, you’ll need to research and choose one that best meets your needs.
What is the best way to buy stocks?
The best way to buy stocks is to do your research and learn about the different stocks and companies you’re interested in. Then, choose the ones that best fit your investment goals and risk tolerance.
You should also consider the fees associated with trading and the terms of the broker you plan to use when making your purchase. Additionally, it is important to practice patience and discipline to avoid making rash decisions.
How do I choose which stocks to buy?
When choosing which stocks to buy, you want to consider a variety of factors. You should look into the company’s financial health, its competitive advantage in the market, its management team, the industry it operates in, and its earnings potential.
Additionally, you should consider your own financial goals, risk tolerance, and investing timeline. Before you start buying stocks, it is important to do your own research. You may even want to consult a financial advisor to ensure that the stocks you are considering are appropriate for your individual financial situation.
What is the risk associated with investing in stocks?
Investing in stocks carries a certain level of risk, as the stock market can be volatile and movements in stock prices can be unpredictable. It’s critical to understand that stocks have the potential to both increase and decrease in value.
What are the costs associated with buying and selling stocks?
The costs associated with buying and selling stocks include commission fees, taxes, and any other applicable fees. Depending on the broker, commissions can range from a flat fee to a percentage of the total trade value.
Taxes, such as capital gains taxes, may also be applicable when selling stocks. Other fees such as account maintenance fees, custody fees, and margin interest may also be applicable.
How old do you have to be to trade stocks?
You must be at least 18 years old to open a brokerage account and trade stocks in the United States. However, some brokers, and in certain states, you need to be at least 21 years old to trade stocks.
How much money do I need to start investing in stocks?
The amount of money needed to start investing in stocks will depend on the types of stocks you plan to buy and the amount of money you are comfortable investing. Generally, you should expect to start with at least $1,000. However, some online platforms require a minimum of $500 or less.
How much money can I make from investing in stocks?
The amount of money you can make from investing in stocks depends on the types of stocks you invest in, the amount of money you invest, and the success of your investments. It’s important to remember that stock investing can also result in losses as well as gains.
IRAs have long been a popular retirement savings tool. And as of the first quarter of 2023, the average IRA balance was $109,000, according to Fidelity.
There are many benefits to funding an IRA. For one thing, traditional IRA contributions go in tax-free, so they shield a portion of your income from the IRS. Plus, investment gains in an IRA are tax-deferred, so you don’t have to deal with taxes until you’re ready to take withdrawals.
There are benefits to keeping all of your investments in an IRA. But here’s why you might also want to open a regular brokerage account, too.
Bonus offer: unlock best-in-class perks with this brokerage account
Read more: best online stock brokers for beginners
When you want more options with your money
A big advantage of keeping all of your investments in an IRA is getting to enjoy tax-advantaged growth. But more so than that, having that money earmarked for retirement could make it less likely that you’ll take a withdrawal prematurely.
After all, you know that an IRA stands for “individual retirement account.” And that fact alone might help you stick to your long-term plan and avoid cashing out investments along the way.
But keeping all of your investments in an IRA also has some drawbacks. Because IRAs give you tax breaks, you’re required to leave your money alone until age 59 1/2. If you withdraw funds before that age, you risk a 10% penalty.
Now, there are a few exceptions to this rule. You’re allowed to take a penalty-free IRA withdrawal prior to age 59 1/2 to buy a first-time home. And you can also withdraw funds penalty-free to pay for college.
But otherwise, that money needs to stay in your IRA until 59 1/2 if you don’t want to face a penalty. And while that may not be problematic if you’re aiming to retire in your 60s, you may decide that you want to retire earlier.
In fact, what if you do a great job of saving and investing so that by age 55, you have $2 million? You may decide that’s enough money to live on and wrap up your career ahead of schedule. Only if all of your investments are in an IRA, you won’t be able to touch that money without a penalty for another four years and change.
It also might be the case that you don’t want to retire early, but rather, are forced to. Your industry might suffer a setback that makes it impossible for you to find work at age 57. At that point, do you really want to force yourself to work any job you can get for two years or more simply because you can’t access your retirement savings yet?
That’s why it could pay to keep some investments in a taxable brokerage account on top of an IRA. Doing so gives you more leeway with that portion of your assets.
Don’t back yourself into a corner with your retirement assets
Keeping all of your investments in an IRA could mean running into issues when you need access to money sooner than what these accounts allow for. So while it certainly pays to max out an IRA every year if you can, it’s also smart to put at least a small sum of money into a regular brokerage account.
It could be as little as $300 or $400 a year. But that way, you’ll have some assets you can cash out at any point without having to worry about penalties.
You probably know how to find and buy stocks, but how do bonds work?
Unfortunately, while online stock brokers have made stock investing child’s play over the last 10 years, bond investing has been slow to catch up. In fact, on many online broker sites, online bond platforms don’t even exist. That’s made the world of individual bond investing pretty murky.
You know that a certain percentage of your portfolio should be allocated to bonds (say 40% if you’re in your 40s), but you’ve probably relied on bond mutual funds to do that. And that’s not a bad thing: Bond mutual funds let you own bonds from hundreds of companies with only a small investment. They also have professional managers who can do research into bond investments for you. But bond funds also have one, significant disadvantage to owning individual bonds.
When you buy a bond, you know:
exactly what your interest payments will be,
when you’ll get them, and
when you’ll get your initial investment back as long as the company doesn’t default.
The prices of bond funds, on the other hand, move up and down just like any other mutual fund. If you need your money on a specific date, you’ll have no idea what your mutual fund will be worth. That can make investing in individual bonds preferable for people who need a specific amount of money at a specific time.
For example, you might need to make a $40,000 tuition payment for your college-bound 16-year old in exactly two years. Invest $40,000 in two-year individual bonds, and you’ll have that money back when you need it (as long as the company doesn’t go bankrupt). But invest it in a bond mutual fund, and who knows what it’ll be worth when it’s time to withdraw? Although bond funds typically don’t go down by large percentages, 2008 taught us that that isn’t always the case.
If you are saving for a time-sensitive goal (or need a stream of retirement income) and think you might be a candidate for investing in individual bonds, here’s a primer on how they work.
How Bonds Work
The Treasury department issues Treasury bonds to finance the operation of the federal government. In the same way, companies, states, and cities issue bonds to finance their own operations. Treasury bonds are considered to have no risk of defaulting. So when a company needs to raise money, investors will demand an interest rate that’s a bit higher than what Treasury bonds are offering in order to compensate the investors for the risk that the company goes bankrupt.
Let’s say a company (I’ll use GE just by way of example) needed to raise $100 million to build a new refrigerator factory and wanted to pay the money back in the year 2020. GE would look to the market to determine what interest rate it would need to offer to get investors to lend them the money. If investors demanded 6%, GE would issue $100 million in bonds with a “coupon rate” (the interest rate) of 6% that would be immediately bought by pre-agreed upon banks, funds, and sometimes, individuals. Most company bonds come in $1,000 denominations (the $1,000 is called “par value”). So for each $1,000 bond that the investor owned, he’d get $60 (6% of $1,000) per year, every year until 2020, at which time he’d get his $1,000 back.
In between the time when GE issues the bond and the time when the bond “matures” (i.e. comes due), investors can sell the bonds on the secondary market. But just like a stock price, the bond price will fluctuate.
Let’s say GE issued that bond three years ago, and since then, the company’s prospects of surviving until 2020, while still good, are decidedly gloomier. If an investor sells his bond today, the buyer will want an interest rate higher than the original 6% to compensate for the extra risk. GE will still pay the new investor $60 per year. So instead, the investor will want to buy the bond for less than par value.
If the new investor buys the bond for $900, while the coupon rate will still be 6%, the yield will be higher — both because he only has to invest $900 to get $60 a year and because he’ll get back $1,000 when the bond matures.
The same thing can happen in reverse, and sometimes investors will buy bonds for above par value, reducing the yield.
Related >> Beginners guide to investing
The Trouble with Buying Bonds
Unfortunately, small investors have a lot more trouble buying individual bonds than they do buying individual stocks. For one, there are simply a lot more bonds than there are stocks. Think about it: A single company could have a dozen times when it wanted to borrow money (meaning it’d have 12 different bonds on the market versus one common stock).
But more important, the actual process of buying a bond isn’t easy. Stock brokers most often act as intermediaries between buyers and sellers. Bond brokers, on the other hand, are often the actual investors who will buy or sell you the bond. So as an individual bond investor, unless you have multiple brokers, your investments will be limited to the bonds that your broker has in his inventory.
Bond commissions can also be confusing. Whereas you might pay a flat commission to buy and sell stocks, the commission on bonds is built into the bond’s price. So, for example, if your broker originally bought the bond for $1,000 and it yielded 7%, he might sell it to you for $1,100, in which case it would only yield 6.4% for you ($70 divided by $1,100). The spread between his buying price and his selling price is effectively his commission. Big investors, who can sink millions of dollars into a bond at once, also tend to get better prices than small investors, who might only be able to buy $10,000 worth of a bond.
For the longest time, small investors couldn’t see how much other investors were buying and selling bonds for, meaning that their broker could seriously rip them off. Fortunately, SIFMA has put together a website where you can look up the prices of recent bond transactions.
When the Hassle is Worth It
All those caveats probably beg the question: Why bother?
For investors just starting out or who have a small amount of their portfolios to devote to bonds (less than $100,000), the answer is, “Don’t!” Just stick with a no-load, low expense mutual fund until you’ve amassed more.
But investors who do meet that criteria can use bonds to create a predictable income stream — something that no bond fund can guarantee.
Have you ever heard somebody’s job title and wondered what it is they even do all day? Some jobs just seem useless, either to outside observers, or even to the people hired to work them. Some jobs are crucial to the organization; others are average, and some jobs may be just an accessory or unnecessary. Here are 17 jobs people hesitate to admit they find completely useless. Is your job here? Continue reading and let us know in the comments!
1. Sorting Files
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One person shared, “My very first job. I’m a toxicologist and was hired by a very big private laboratory. My main job was to sort and redirect case files depending on the time at which the results came out. THE DOCUMENTS WERE SENT TO ME IN EXCEL. I was getting paid to just click sort by date descendingly.”
Another user replied, “I had to do something similar to this when I was doing summer help at a steel factory. They paid me $14 an hour to sit there for eight hours and just move files to different folders and rename them. Sometimes I would pull weeds and paint walls, but that was about it.”
Sorting Files
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Another added, “Working for a big company, one of the top 20 in the world, I am realising how bad people are with basic computer tasks… like really bad!”
2. Teachers who Don’t Teach
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“My math teacher who tells me to log in to Pearson and then disappears,” one person stated.
“I dropped a university class this term because the week 3 assignment said to ‘look up how to do this on Google, Stackexchange, or ChatGPT.’ I’m not paying 1400 dollars to be taught by an AI chat bot, [lol],” another one shared.
“As a teacher myself, trust me, these are the kinds of colleagues we can’t stand,” one Redditor added.
3. Management Consultant
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One person stated, “Mine. I’m a management consultant and while I have quite a bit of industry knowledge and experience, my clients either have the same knowledge or they aren’t willing to accept change. Often times my firm gets paid a lot of money to make very little difference strategically and/or operationally. Where we do add value is in implementing enterprise-wide software solutions. Why do I stay? The money is pretty good given the futility.”
“I heard from an acquaintance of mine who is a management consultant that most of the time people just want to hear their ideas out of someone else’s mouth and will pay you to do it so that their peers will be more amenable to the idea,” another user replied.
One commenter added, “Nothing like a bunch of 20 somethings telling a bunch of C-Suit executives how to run a business.”
4. Pet Psychic
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One user said, “Our Golden Retriever was getting joint therapy (shoulder injury, worked with a vet, dog did swimming three days a week in a heated pool where he could exercise without putting weight on the joint, also did some exercises, is now fine. The place also did laser therapy and acupuncture for dogs.) Someone said something about ‘Hudson’ which is our dog’s name only they were talking to another dog. ‘Oh,’ they said, ‘That’s the dog psychic’s dog.’ Apparently you could find out what your dog was thinking. I know what my dog is thinking. Most of the time he either wants what I’m eating or he wants me to throw the ball.”
Another Redditor replied, “My cousin is a ‘pet psychic.’ She’s got quite the following on IG, a fancy website, and even a podcast. She claims to receive telepathic messages from your furry friends. She can even talk to reptiles and horses now! And she’s not horsing around, apparently each species requires a specific training. I’m not sure if she’s delusional or just scamming people, but either way, she’s making a lot of $$$.”
5. Elevator Attendant
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One person shared, “I’m so old I remember when they had these in department stores. Whilst shopping with my grandma one day we got in an elevator and the attendant asked if we wanted the second floor. My grandma replies, ‘Why yes, how did you know?’ He says, ‘Ma’am, there’s only two floors, and we’re currently on the first one.’”
“They’re from an era of manually operated elevators. You used to have to close the doors manually then use a lever to control the elevator and stop it just right at the floor you wanted. It was tricky and very dangerous if you got it wrong, so you had an elevator operator whose job it was to run the elevator,” the second one replied.
6. Telemarketers
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“Telemarketers, I don’t know a single person who has actually purchased something from a telemarketer. Maybe it’s something the older generation does but everyone hates them and immediately hangs up on them around me,” one person stated.
“I worked as a telemarketer for State Farm when I got out of high school, and in 8 months I had one person actually let me give her a quote. It was my aunt,” another Redditor replied.
One commenter added, “I remember when I was 12 I told this random telemarketer to get a life because at that point we were getting like 5-10 calls a day. She called me back and cussed me out. To this day, I think it’s so funny.”
7. Sign Spinners
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Sign spinners, or sign twirlers, are people who hold a sign and stand on the street to get attention and possibly a customer for the business that hired them.
“The job only exists because the businesses want to put a sign there, but it’s cheaper or the only legal option to hire a person to hold the sign and stand there,” one person shared.
“That was my job for one summer in college. I got to hang out outside and listen to music all day. But I always thought it was weird that they were paying some guy $15/hr to do the job of a stick and a piece of duct tape,” another commenter replied.
One Redditor added, “I had a job like that except I didn’t even have to hold the sign. They said I could just lean it against the front of the store and stand next to it.”
8. Paparazzi
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Everybody knows what the paparazzi jobs are doing—stalking people, taking pictures of them, and making money.
“You know why paparazzi make a ton of money and keep doing what they are doing? Because people keep buying their photos to put in magazines that people keep buying. Stop buying the magazines and watching the shows that feature their photos, and the paparazzi will go away. Easy peasy,” one person said.
Another commenter replied, “Scum of the earth.”
One user added, “They’re just filling a demand. I blame and judge those that consume the media they produce.”
9. Bathroom Attendants
One person said, “I don’t need somebody in there pulling paper towels out of the dispenser just to hand it to me and compel me to tip them.” The second one replied, “I never saw this until I was visiting Ireland a few years back, and man, was it annoying. It’s bad enough there’s a guy standing at the sinks watching you have a leak, but then he wants a euro or two for handing you a towel to dry your hands.”
Another commenter said, “They’re essentially bathroom security guards. They prevent people from doing drugs and having sex in the bathroom.”
10. Patent Trolls
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One user said, “People that apply for Patents. And then just hold onto them forever with no intent of making the thing. And then when somebody does make the thing, ho-boy, you owe me money because I own the rights to that thing! It’s one of those weird ‘Do nothing and hope to eventually get a big payout’ jobs, like Domain Squatters.”
Another commenter stated, “There should be a law that makes the patent public domain if the owner doesn’t actually use it. It would probably accelerate the progress of humanity by a big factor.”
11. Shop Security
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One person said, “Shop security—in most cases, they can’t legally do anything but just watch.”
Another user replied, “Depends on the type of security they invest in. Security guards who stand at the door all day in a uniform—yes you’re right, in most cases, they’re used as a deterrent. However, store detectives go undercover and try to blend in with other customers (in their own clothes, browsing stock and carrying a basket/trolley) so that they go unnoticed. Those people are allowed to tackle shoplifters and actually do something about it.”
One commenter said, “Security is used primarily for insurance and tax reasons. You have to show that your actively trying to prevent and deter theft and accidents.”
12. Car Dealerships
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“Just let me buy a car from the factory. Your job is to get me to pay as much as possible. So useless and so annoying,” one person said.
“It’s an ancient law that mandated dealerships so you’d have a guaranteed mechanic to work on it. Obsolete since auto shops are a thing,” another user replied.
“Car salespeople, realtors, stock brokers. They are pure middlemen who produce nothing for society other than putting cash in their own pocket,” another added.
13. Health Insurance Operators
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One person said, “While it’s a billion-dollar industry, health insurance. Literally, they exist to prevent you from cashing out on what you paid into. They have little to no medical knowledge, make everything more expensive, and exist solely as a useless middleman to make themselves rich.”
Another person shared, “Exactly. They just refused to cover my medication that they suggested several years ago to replace another medication that they did not want to cover at the time. This time they didn’t even offer a replacement, just refused to cover my meds without any explanation. It’s an absurd world where the insurance company makes decisions on my healthcare instead of my doctor.”
14. Homeopath
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“I’ll do you one better, a few weeks I saw an ad for a homeopathic veterinary doctor. I feel bad for the animals unfortunate enough to find themselves as patients,” one person shared.
“Ugh. Literally the only possible benefit homeopathy could have due to the placebo effect. Pets ain’t even benefiting from that,” the second replied.
15. Reiki Healer
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One person stated, “I knew a lady, very nice and caring, but off the wall hippie, who would charge people to hold her hand over them and transmit ‘healing energy.’ She also offered long-distance reiki where she promised to send you healing energy from her couch and would even set appointments to do just that.”
Another user added, “The funny thing is anyone can just open a Reiki clinic and call themselves an expert/shaman. If you go to school for it you’re just another victim of the grift.”
16. Middle Management
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“Most middle management positions. Their job is literally to take things from above and send them below, and to have someone to shift blame to.” one person expressed.
“Don’t forget all the useless meetings that they organize. I bet redundant managers everywhere were really sweating for their jobs when everyone was WFH,” another one added.
Another commenter said, “You clearly have no idea what management does. Or worked on a team that was poorly managed.”
17. Hedge Fund Managers
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One Reddit user said, “They produce no goods or services that actually make the world a better place. They are gamblers and leeches on society.”
Another user replied, “I’m convinced that half the time, even the news articles about stocks are [intentionally] misleading in order to get uninformed people to bet against the winning play.”
Original Reddit Thread here.
Here are 10 of The Most Beautiful Songs People Have Ever Heard
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What’s your favorite song of all time? Check out this article with ten of people’s favorite songs of all time.
10 Movies People Said were Awful that are Actually Great
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Have you ever been warned away from a terrible movie only to discover that you really love it? Check out this list of movies people said were terrible, but turned out to be fantastic!
10 Actors People Never Believed would Become as Big as they Did
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Have you ever been surprised at an actor or actress’s success? Us too: check out this article of celebrities we never thought would get this popular.
10 Celebrities People Automatically Assume will make a Movie Great
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Who’s your favorite celebrity? Would you watch anything they’re cast in? Check out this compilation of Redditors’ favorite actors!
10 Best One-Note Actors of All Time
Image Credit: Shutterstock – Tinseltown
Can you think of any actors or actresses who were great, and then weren’t? Here’s our top list of one-hit wonders, all in one place!
A common misbelief is that one must be rich to invest. It’s easy to invest with little money in a variety of assets and save for your goals. More platforms let you “micro invest” and purchase small amounts of expensive assets.
Even if you only invest a few dollars each month, that money can start building wealth.
Consistently investing small amounts can be more effective than waiting to accumulate a lump sum because you can earn compound interest.
Some people may never invest because they don’t think they have enough money.
In This Article
Best Ways to Start Investing with Little Money
It’s possible to invest as little as $5 at a time and diversify your portfolio. As your financial situation improves, you can increase your monthly investments and try more ideas.
1. Invest in Index Funds
Investing in index funds can be the best option to start investing small amounts of money.
First, index funds let you invest in hundreds of companies with a single investment to quickly diversify your portfolio and minimize risk.
Second, most index funds have low investing fees and expense ratios. For example, a fund with a 0.03% expense ratio costs 30 cents in annual fees.
Most brokers don’t charge trade commissions to buy or sell index funds. Paying fewer fees means you can invest more cash.
Some of the types of index funds you can invest in include:
US stocks
International stocks
Emerging markets
Corporate bonds
Government bonds
Real estate investment trusts (REITs)
The various online stock brokers offer stock and bond index exchange-traded funds (ETFs). These funds trade like individual stocks. The share price fluctuates during the market day and you can buy shares at any time.
Your 401k provider likely offers index mutual funds. The investing strategy is the same except the share price updates once a day after the stock market closes.
Most online brokers offer index funds and don’t charge any trade commissions. However, some can be easier to invest with when you have little money.
Minimum Investment: $5 (varies by broker)
Betterment
Using a robo-advisor like Betterment can be one of the easiest ways to invest in index funds. This fully-automated investing app automatically rebalances your portfolio to maintain your target asset allocation.
You can also enable tax-loss harvesting to minimize your taxable investment income by selling investment losses to offset your investment gains.
You will answer several questions about your age, investment goals and risk tolerance to recommend an investment portfolio of stock and bond index ETFs.
As you grow older, Betterment shifts your portfolio to a more conservative allocation.
Not having to manage your portfolio is one advantage of using a robo-advisor when you don’t have the time or desire to self-manage your investments.
Betterment also offers fractional investing so you can buy partial shares of funds to instantly diversify your portfolio.
Other brokers may require you to buy whole shares which makes buying multiple funds at once difficult if you have limited funds.
You can create a portfolio with $0 and start investing with a $10 initial deposit. The annual account fee for Betterment is 0.25% of your portfolio value.
Acorns
Another unique way to invest in index funds is by using Acorns. This micro-investing app invests your spare change by rounding up your debit and credit card purchases.
You can choose to invest in a premade portfolio of stocks and bonds with different risk levels.
Acorns buys fractional shares of index ETFs when with as little as $5. Taxable and retirement investment accounts are available along with an online checking account.
Monthly plan fees range between $1 and $5 per month.
2. Workplace Retirement Accounts
A workplace retirement account such as a 401k, 403b or a Thrift Savings Plan (TSP), this can be the best place to start investing with little money. See if your employer offers matching contributions. If so, invest enough each month to earn the full match and invest “free money.”
If your workplace doesn’t offer a retirement plan or matching contributions, you can open an individual retirement account (IRA). Most brokers offer IRAs with no account fees or minimum initial deposits. You have multiple investment options.
One perk of investing with a retirement account is the tax benefits. You only pay taxes once. Traditional contributions reduce your current annual income, grow tax-deferred and you pay income taxes when you make a withdrawal. Roth contributions require you to pay income taxes upfront but your withdrawals are tax-free.
Your workplace retirement account investment options can include:
Stock index mutual funds
Bond index mutual funds
Target date funds
Company stock
The investment options are different for each employer yet most plans offer target date funds. Choosing a target date fund that’s nearest to your planned retirement year can be a good option. The fund invests in stocks and bonds and adjusts to a conservative risk tolerance as retirement approaches.
If you only decide to invest in a target date fund, you won’t have to rebalance your asset allocation. However, you should monitor the target date fund performance. You may also decide to self-manage your portfolio by buying index funds to reduce your investment fees.
You can invest as little as $1 at a time into each fund. If you’re uncomfortable managing your own retirement account, Blooom can provide a free portfolio analysis and recommend a portfolio allocation.
Minimum investment: $1
3. Individual Stocks
After establishing an index fund portfolio, you may decide to buy stock in individual companies. There are many online brokers to choose from and most don’t charge account fees or trade commissions to buy or sell shares.
You may decide to buy dividend-paying stocks to earn consistent passive income. Another option is holding companies with strong growth potential that can beat the stock market but may not pay a dividend.
M1 Finance is one of the best free investing apps. You can buy fractional shares of stocks and ETFs with a minimum $25 investment. There are also premade ETF portfolios that can make it easier to diversify. As you invest new money, M1 rebalances your asset allocation.
The minimum initial deposit is $100 for taxable accounts and $500 for retirement accounts to start using M1 Finance.
You can also consider investing with Charles Schwab. You can buy fractional stock slices as small as $5 for many stocks and there are no trade fees or account minimums. But, you will need to self-manage your investment portfolio.
Minimum investment: $5
Tip: Using one of the top investment sites can make it easier to research stocks.
4. Crowdfunded Real Estate
Real estate is a longstanding way to earn passive income without relying on the stock market. However, owning investment properties is expensive and can be time-consuming.
Thanks to real estate crowdfunding, you can invest small amounts of money into commercial and multi-family real estate. These properties have multiple tenants and can provide a more stable income than a single-family rental property. A property manager screens the tenants, collects rent and makes repairs.
You can earn recurring dividends from monthly rent payments. It’s also possible to make money when a property sells for a higher value than the original purchase price.
DiversyFund is one of the best crowdfunding platforms. You can start investing as little as $500. The Growth REIT lets you invest in multifamily apartments across the United States.
One downside of crowdfunded real estate is the multi-year investment commitment. Most platforms require a five-year investment to avoid early redemption fees. As a tradeoff for the long-term commitment, you can earn annual returns that compete with the historical S&P 500 average return of 7% per year.
Minimum investment: $500
5. Small Business Bonds
The bond index funds you invest in hold corporate and government debt. Investing in small business bonds can help you earn a higher yield. Worthy Bonds yield 5% per year and let you invest as little as $10 at a time.
Each bond matures in 36 months but you can sell your position sooner with no early withdrawal penalty.
Read our Worthy Bonds review to learn more.
Minimum investment: $10
6. High-Yield Savings Accounts
It’s wise to keep cash that you need instant access to in a high-yield savings account. Banks are a low-risk way to earn passive income but your returns are not as high.
You might consider keeping your emergency fund in a high-yield savings account that doesn’t charge any account fees. Also, consider opening separate “sinking fund” accounts for various savings goals to avoid borrowing money. A savings account can also be a good place to park cash until you decide where to invest it and earn a higher potential return.
Ally Bank has a competitive interest rate for the high-yield savings account. There are no account fees or minimum balance requirements. The Surprise Savings booster tool can help you calculate a “safe-to-spend” amount and transfer your extra cash into savings.
Minimum investment: $1
7. Certificates of Deposit
Investing in stocks and bonds can provide higher investment returns but carry more risk. A bank certificate of deposit locks in a specific interest rate for the investment term. For example, a 12-month term CD has the same interest rate for the next 12 months.
Instead of keeping your free cash in an interest-bearing savings account, consider opening a bank CD with a similar or higher interest rate.
If the savings account interest rate drops, the CD can earn more interest until the CD matures. Most CDs have early redemption penalties if you withdraw the cash before the term ends. At the end of the term, you can redeem your CD balance penalty-free or renew the CD at the then-current term.
Some banks, including CIT Bank, offer no-penalty CDs. These CDs don’t charge an early withdrawal penalty but may offer lower yields than a term CD.
As bank interest rates are low, the passive income you earn from CDs can be lower than the inflation rate. But earning some interest income can be better than nothing.
Minimum investment: $100
8. Peer-to-Peer Investing
You earn income from savings accounts and bank CDs as the bank lends your money at a higher interest rate. Peer-to-peer lending platforms let you earn a higher rate as you lend directly to the borrower and bypass the bank.
Prosper lets you invest in crowdfunded personal loans with a three-year or five-year repayment term. Borrowers make monthly payments and you make money from the interest payment, minus a 1% service fee. The historical annual returns are between 3.5% and 7.6%.
You can lose money if the borrower defaults on the loan. To avoid losing money, Prosper lets you buy notes in $25 increments and recommends a $2,500 initial investment to properly diversify. You can invest in multiple loans to diversify your portfolio.
Prosper also assigns each borrower a risk rating and you can see basic credit profile details. There’s also an auto-invest feature that spreads your investment across multiple risk ratings. You might be able to easily diversify your portfolio by auto-investing and avoid investing in too many risky loans.
Minimum investment: $25
9. Physical Gold
Precious metals such as physical gold and silver are a popular alternative asset. Unless you invest in gold royalty stocks, you won’t earn dividend income. You make money by selling your precious metal investments above your purchase price.
Buying gold coins and bars can be one of the best ways to invest in gold. Physical gold is expensive and you may not be able to buy an entire ounce or gram at once.
Vaulted lets you buy fractional shares of physical gold bars. Your stash is held at the Royal Canadian Mint. Once your balance is high enough, you can request FedEx delivery to receive your physical gold. There is a 1.8% transaction fee to buy or sell and a 0.4% annual maintenance fee.
It’s also possible to invest in gold trust ETFs that trade on the stock market. Most investing apps let you trade these funds. The share price mimics the price of physical gold.
But most gold ETFs don’t offer physical delivery as the fund family owns the bullion.
Minimum investment: $10
10. Cryptocurrency
When you’re deciding what to invest in first, cryptocurrency probably isn’t going to be at the top of the list. After all, this digital asset is highly volatile and doesn’t earn interest.
Many people who buy crypto do so as an alternative to stocks and gold.
For example, you might buy cryptocurrency as a way to diversify once you hold a sufficient amount of stocks, index funds and gold.
The most popular cryptocurrency is Bitcoin. This cryptocoin has the best name recognition and more merchants accept it as payment instead of paper currency.
There are other “alt-coins” like Ethereum that can also be worth owning if you believe in the long-term potential of cryptocurrency.
It has been fairly difficult to buy cryptocurrency but more platforms are making it easy to buy cryptocurrency. PayPal and Square let you buy Bitcoin and use it to pay for purchases.
However, you won’t be able to move your Bitcoin balance off of their platform.
Another easy way to buy cryptocurrency is through an online broker like eToro. You can trade cryptocurrency futures after a minimum $50 initial deposit.
EToro also lets you copy the investment portfolios of experienced cryptocurrency investors which can improve your income potential.
A third way to buy cryptocurrency is using a digital currency exchange such as Coinbase. Buying directly from an exchange lets you own real Bitcoin and alt-coins. You can transfer them to a cryptocurrency wallet for added security from hackers.
No matter where you decide to buy cryptocurrency, you can buy fractional shares of Bitcoin and other coins. Investment minimums and transaction fees vary by platform.
Minimum investment: $2 (varies by platform)
11. Treasury Bonds
Most investors get exposure to government bonds by holding bond index funds in their brokerage account or 401k workplace retirement plan.
As bonds can be pricey and confusing to buy, bond funds make it easy to earn passive income.
You can have more control over which bonds you own by buying U.S. Treasury bonds. You can choose the maturity date. Each Treasury bond has a $100 minimum investment with a maturity date of up to 30 years.
It’s also possible to buy Treasury Inflation-Protected Securities (TIPs) as a hedge against future inflation.
Another option is purchasing Series I or Series EE Savings Bonds. Both types of savings bonds have a $25 minimum investment.
You can buy Treasury bonds from TreasuryDirect.
Minimum investment: $100 for Treasury notes and bonds ($25 for savings bonds)
12. Fine Wine
A long-term investing idea is owning fine wine. You can open a standard portfolio at Vinovest with a $1,000 minimum initial investment.
Vinovest automatically builds your wine portfolio making it easy to start if you’re unfamiliar with wine investing.
Each bottle in your portfolio remains in climate-controlled cellars across the world and is insured against damages. You decide when to sell your wine. It’s possible to request delivery if you want to open a bottle.
Collectible wine can increase in value as it ages and the scarcity of unopened bottles increases. Wine investing is like owning physical gold and doesn’t earn dividend income.
It can take up to 30 years to earn the best value before you sell a bottle.
Minimum investment: $1,000
13. Fine Art
Another unique investment option is investing in fine art. Masterworks lets you buy shares in classic and modern pieces with a $1,000 minimum investment.
The holding period for most pieces is between three and ten years. You earn a profit if the piece sells for a profit.
Due to the relatively high initial minimum investment and waiting years to earn income, you may invest small amounts of money in other ideas first to make money fast.
Minimum investments: $1,000
Summary
There are many ways to start investing little money today and earn recurring income. Many platforms have small minimum investments which make it easy to try several ideas and diversify your portfolio.
As you increase your income, you can boost your monthly investment.
How do you invest your money? Which idea are you going to try first?
Josh is a personal finance writer and Founder of MoneyBuffalo.com. He has been featured in publications like Student Loan Hero, Well Kept Wallet and the US News and World Report.
In Best Low-Risk Investments for 2023, I provided a comprehensive list of low-risk investments with predictable returns. But it’s precisely because those returns are low-risk that they also provide relatively low returns.
In this article, we’re going to look at high-yield investments, many of which involve a higher degree of risk but are also likely to provide higher returns.
True enough, low-risk investments are the right investment solution for anyone who’s looking to preserve capital and still earn some income.
But if you’re more interested in the income side of an investment, accepting a bit of risk can produce significantly higher returns. And at the same time, these investments will generally be less risky than growth stocks and other high-risk/high-reward investments.
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Determine How Much Risk You’re Willing to Take On
The risk we’re talking about with these high-yield investments is the potential for you to lose money. As is true when investing in any asset, you need to begin by determining how much you’re willing to risk in the pursuit of higher returns.
Chasing “high-yield returns” will make you broke if you don’t have clear financial goals you’re working towards.
I’m going to present a large number of high-yield investments, each with its own degree of risk. The purpose is to help you evaluate the risk/reward potential of these investments when selecting the ones that will be right for you.
If you’re looking for investments that are completely safe, you should favor one or more of the highly liquid, low-yield vehicles covered in Best Low-Risk Investments for 2023. In this article, we’re going to be going for something a little bit different. As such, please note that this is not in any way a blanket recommendation of any particular investment.
Best High-Yield Investments for 2023
Table of Contents
Below is my list of the 18 best high-yield investments for 2023. They’re not ranked or listed in order of importance. That’s because each is a unique investment class that you will need to carefully evaluate for suitability within your own portfolio.
Be sure that any investment you do choose will be likely to provide the return you expect at an acceptable risk level for your own personal risk tolerance.
1. Treasury Inflation-Protected Securities (TIPS)
Let’s start with this one, if only because it’s on just about every list of high-yield investments, especially in the current environment of rising inflation. It may not actually be the best high-yield investment, but it does have its virtues and shouldn’t be overlooked.
Basically, TIPS are securities issued by the U.S. Treasury that are designed to accommodate inflation. They do pay regular interest, though it’s typically lower than the rate paid on ordinary Treasury securities of similar terms. The bonds are available with a minimum investment of $100, in terms of five, 10, and 30 years. And since they’re fully backed by the U.S. government, you are assured of receiving the full principal value if you hold a security until maturity.
But the real benefit—and the primary advantage—of these securities is the inflation principal additions. Each year, the Treasury will add an amount to the bond principal that’s commensurate with changes in the Consumer Price Index (CPI).
Fortunately, while the principal will be added when the CPI rises (as it nearly always does), none will be deducted if the index goes negative.
You can purchase TIPS through the U.S. Treasury’s investment portal, Treasury Direct. You can also hold the securities as well as redeem them on the same platform. There are no commissions or fees when buying securities.
On the downside, TIPS are purely a play on inflation since the base rates are fairly low. And while the principal additions will keep you even with inflation, you should know that they are taxable in the year received.
Still, TIPS are an excellent low-risk, high-yield investment during times of rising inflation—like now.
2. I Bonds
If you’re looking for a true low-risk, high-yield investment, look no further than Series I bonds. With the current surge in inflation, these bonds have become incredibly popular, though they are limited.
I bonds are currently paying 6.89%. They can be purchased electronically in denominations as little as $25. However, you are limited to purchasing no more than $10,000 in I bonds per calendar year. Since they are issued by the U.S. Treasury, they’re fully protected by the U.S. government. You can purchase them through the Treasury Department’s investment portal, TreasuryDirect.gov.
“The cash in my savings account is on fire,” groans Scott Lieberman, Founder of Touchdown Money. “Inflation has my money in flames, each month incinerating more and more. To defend against this, I purchased an I bond. When I decide to get my money back, the I bond will have been protected against inflation by being worth more than what I bought it for. I highly recommend getting yourself a super safe Series I bond with money you can stash away for at least one year.”
You may not be able to put your entire bond portfolio into Series I bonds. But just a small investment, at nearly 10%, can increase the overall return on your bond allocation.
3. Corporate Bonds
The average rate of return on a bank savings account is 0.33%. The average rate on a money market account is 0.09%, and 0.25% on a 12-month CD.
Now, there are some banks paying higher rates, but generally only in the 1%-plus range.
If you want higher returns on your fixed income portfolio, and you’re willing to accept a moderate level of risk, you can invest in corporate bonds. Not only do they pay higher rates than banks, but you can lock in those higher rates for many years.
For example, the average current yield on a AAA-rated corporate bond is 4.55%. Now that’s the rate for AAA bonds, which are the highest-rated securities. You can get even higher rates on bonds with lower ratings, which we will cover in the next section.
Corporate bonds sell in face amounts of $1,000, though the price may be higher or lower depending on where interest rates are. If you choose to buy individual corporate bonds, expect to buy them in lots of ten. That means you’ll likely need to invest $10,000 in a single issue. Brokers will typically charge a small per-bond fee on purchase and sale.
An alternative may be to take advantage of corporate bond funds. That will give you an opportunity to invest in a portfolio of bonds for as little as the price of one share of an ETF. And because they are ETFs, they can usually be bought and sold commission free.
You can typically purchase corporate bonds and bond funds through popular stock brokers, like Zacks Trade, TD Ameritrade.
Corporate Bond Risk
Be aware that the value of corporate bonds, particularly those with maturities greater than 10 years, can fall if interest rates rise. Conversely, the value of the bonds can rise if interest rates fall.
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4. High-Yield Bonds
In the previous section we talked about how interest rates on corporate bonds vary based on each bond issue’s rating. A AAA bond, being the safest, has the lowest yield. But a riskier bond, such as one rated BBB, will provide a higher rate of return.
If you’re looking to earn higher interest than you can with investment-grade corporate bonds, you can get those returns with so-called high-yield bonds. Because they have a lower rating, they pay higher interest, sometimes much higher.
The average yield on high-yield bonds is 8.29%. But that’s just an average. The yield on a bond rated B will be higher than one rated BB.
You should also be aware that, in addition to potential market value declines due to rising interest rates, high-yield bonds are more likely to default than investment-grade bonds. That’s why they pay higher interest rates. (They used to call these bonds “junk bonds,” but that kind of description is a marketing disaster.) Because of those twin risks, junk bonds should occupy only a small corner of your fixed-income portfolio.
High Yield Bond Risk
In a rapidly rising interest rate environment, high-yield bonds are more likely to default.
High-yield bonds can be purchased under similar terms and in the same places where you can trade corporate bonds. There are also ETFs that specialize in high-yield bonds and will be a better choice for most investors, since they will include diversification across many different bond issues.
5. Municipal Bonds
Just as corporations and the U.S. Treasury issue bonds, so do state and local governments. These are referred to as municipal bonds. They work much like other bond types, particularly corporates. They can be purchased in similar denominations through online brokers.
The main advantage enjoyed by municipal bonds is their tax-exempt status for federal income tax purposes. And if you purchase a municipal bond issued by your home state, or a municipality within that state, the interest will also be tax-exempt for state income tax purposes.
That makes municipal bonds an excellent source of tax-exempt income in a nonretirement account. (Because retirement accounts are tax-sheltered, it makes little sense to include municipal bonds in those accounts.)
Municipal bond rates are currently hovering just above 3% for AAA-rated bonds. And while that’s an impressive return by itself, it masks an even higher yield.
Because of their tax-exempt status, the effective yield on municipal bonds will be higher than the note rate. For example, if your combined federal and state marginal income tax rates are 25%, the effective yield on a municipal bond paying 3% will be 4%. That gives an effective rate comparable with AAA-rated corporate bonds.
Municipal bonds, like other bonds, are subject to market value fluctuations due to interest rate changes. And while it’s rare, there have been occasional defaults on these bonds.
Like corporate bonds, municipal bonds carry ratings that affect the interest rates they pay. You can investigate bond ratings through sources like Standard & Poor’s, Moody’s, and Fitch.
Fund
Symbol
Type
Current Yield
5 Average Annual Return
Vanguard Inflation-Protected Securities Fund
VIPSX
TIPS
0.06%
3.02%
SPDR® Portfolio Interm Term Corp Bond ETF
SPIB
Corporate
4.38%
1.44%
iShares Interest Rate Hedged High Yield Bond ETF
HYGH
High-Yield
5.19%
2.02%
Invesco VRDO Tax-Free ETF (PVI)
PVI
Municipal
0.53%
0.56%
6. Longer Term Certificates of Deposit (CDs)
This is another investment that falls under the low risk/relatively high return classification. As interest rates have risen in recent months, rates have crept up on certificates of deposit. Unlike just one year ago, CDs now merit consideration.
But the key is to invest in certificates with longer terms.
“Another lower-risk option is to consider a Certificate of Deposit (CD),” advises Lance C. Steiner, CFP at Buckingham Advisors. “Banks, credit unions, and many other financial institutions offer CDs with maturities ranging from 6 months to 60 months. Currently, a 6-month CD may pay between 0.75% and 1.25% where a 24-month CD may pay between 2.20% and 3.00%. We suggest considering a short-term ladder since interest rates are expected to continue rising.” (Stated interest rates for the high-yield savings and CDs were obtained at bankrate.com.)
Most banks offer certificates of deposit with terms as long as five years. Those typically have the highest yields.
But the longer term does involve at least a moderate level of risk. If you invest in a CD for five years that’s currently paying 3%, the risk is that interest rates will continue rising. If they do, you’ll miss out on the higher returns available on newer certificates. But the risk is still low overall since the bank guarantees to repay 100% of your principle upon certificate maturity.
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7. Peer-to-Peer (P2P) Lending
Do you know how banks borrow from you—at 1% interest—then loan the same money to your neighbor at rates sometimes as high as 20%? It’s quite a racket, and a profitable one at that.
But do you also know that you have the same opportunity as a bank? It’s an investing process known as peer-to-peer lending, or P2P for short.
P2P lending essentially eliminates the bank. As an investor, you’ll provide the funds for borrowers on a P2P platform. Most of these loans will be in the form of personal loans for a variety of purposes. But some can also be business loans, medical loans, and for other more specific purposes.
As an investor/lender, you get to keep more of the interest rate return on those loans. You can invest easily through online P2P platforms.
One popular example is Prosper. They offer primarily personal loans in amounts ranging between $2,000 and $40,000. You can invest in small slivers of these loans, referred to as “notes.” Notes can be purchased for as little as $25.
That small denomination will make it possible to diversify your investment across many different loans. You can even choose the loans you will invest in based on borrower credit scores, income, loan terms, and purposes.
Prosper, which has managed $20 billion in P2P loans since 2005, claims a historical average return of 5.7%. That’s a high rate of return on what is essentially a fixed-income investment. But that’s because there exists the possibility of loss due to borrower default.
However, you can minimize the likelihood of default by carefully choosing borrower loan quality. That means focusing on borrowers with higher credit scores, incomes, and more conservative loan purposes (like debt consolidation).
8. Real Estate Investment Trusts (REITs)
REITs are an excellent way to participate in real estate investment, and the return it provides, without large amounts of capital or the need to manage properties. They’re publicly traded, closed-end investment funds that can be bought and sold on major stock exchanges. They invest primarily in commercial real estate, like office buildings, retail space, and large apartment complexes.
If you’re planning to invest in a REIT, you should be aware that there are three different types.
“Equity REITs purchase commercial, industrial, or residential real estate properties,” reports Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance, Heider College of Business, Creighton University and co-author of several books, including The Tools and Techniques Of Investment Planning, Strategic Value Investing and Investment Banking for Dummies. “Income is derived primarily from the rental on the properties, as well as from the sale of properties that have increased in value. Mortgage REITs invest in property mortgages. The income is primarily from the interest they earn on the mortgage loans. Hybrid REITs invest both directly in property and in mortgages on properties.”
Johnson also cautions:
“Investors should understand that equity REITs are more like stocks and mortgage REITs are more like bonds. Hybrid REITs are like a mix of stocks and bonds.”
Mortgage REITs, in particular, are an excellent way to earn steady dividend income without being closely tied to the stock market.
Examples of specific REITs are listed in the table below (source: Kiplinger):
REIT
Equity or Mortgage
Property Type
Dividend Yield
12 Month Return
Rexford Industrial Realty
REXR
Industrial warehouse space
2.02%
2.21%
Sun Communities
SUI
Manufactured housing, RVs, resorts, marinas
2.19%
-14.71%
American Tower
AMT
Multi-tenant cell towers
2.13%
-9.00%
Prologis
PLD
Industrial real estate
2.49%
-0.77%
Camden Property Trust
CPT
Apartment complexes
2.77%
-7.74%
Alexandria Real Estate Equities
ARE
Research Properties
3.14%
-23.72%
Digital Realty Trust
DLR
Data centers
3.83%
-17.72%
9. Real Estate Crowdfunding
If you prefer direct investment in a property of your choice, rather than a portfolio, you can invest in real estate crowdfunding. You invest your money, but management of the property will be handled by professionals. With real estate crowdfunding, you can pick out individual properties, or invest in nonpublic REITs that invest in very specific portfolios.
One of the best examples of real estate crowdfunding is Fundrise. That’s because you can invest with as little as $500 or create a customized portfolio with no more than $1,000. Not only does Fundrise charge low fees, but they also have multiple investment options. You can start small in managed investments, and eventually trade up to investing in individual deals.
One thing to be aware of with real estate crowdfunding is that many require accredited investor status. That means being high income, high net worth, or both. If you are an accredited investor, you’ll have many more choices in the real estate crowdfunding space.
If you are not an accredited investor, that doesn’t mean you’ll be prevented from investing in this asset class. Part of the reason why Fundrise is so popular is that they don’t require accredited investor status. There are other real estate crowdfunding platforms that do the same.
Just be careful if you want to invest in real estate through real estate crowdfunding platforms. You will be expected to tie your money up for several years, and early redemption is often not possible. And like most investments, there is the possibility of losing some or all your investment principal.
Low minimum investment – $10
Diversified real estate portfolio
Portfolio Transparency
10. Physical Real Estate
We’ve talked about investing in real estate through REITs and real estate crowdfunding. But you can also invest directly in physical property, including residential property or even commercial.
Owning real estate outright means you have complete control over the investment. And since real estate is a large-dollar investment, the potential returns are also large.
For starters, average annual returns on real estate are impressive. They’re even comparable to stocks. Residential real estate has generated average returns of 10.6%, while commercial property has returned an average of 9.5%.
Next, real estate has the potential to generate income from two directions, from rental income and capital gains. But because of high property values in many markets around the country, it will be difficult to purchase real estate that will produce a positive cash flow, at least in the first few years.
Generally speaking, capital gains are where the richest returns come from. Property purchased today could double or even triple in 20 years, creating a huge windfall. And this will be a long-term capital gain, to get the benefit of a lower tax bite.
Finally, there’s the leverage factor. You can typically purchase an investment property with a 20% down payment. That means you can purchase a $500,000 property with $100,000 out-of-pocket.
By calculating your capital gains on your upfront investment, the returns are truly staggering. If the $500,000 property doubles to $1 million in 20 years, the $500,000 profit generated will produce a 500% gain on your $100,000 investment.
On the negative side, real estate is certainly a very long-term investment. It also comes with high transaction fees, often as high as 10% of the sale price. And not only will it require a large down payment up front, but also substantial investment of time managing the property.
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11. High Dividend Stocks
“The best high-yield investment is dividend stocks,” declares Harry Turner, Founder at The Sovereign Investor. “While there is no guaranteed return with stocks, over the long term stocks have outperformed other investments such as bonds and real estate. Among stocks, dividend-paying stocks have outperformed non-dividend paying stocks by more than 2 percentage points per year on average over the last century. In addition, dividend stocks tend to be less volatile than non-dividend paying stocks, meaning they are less likely to lose value in downturns.”
You can certainly invest in individual stocks that pay high dividends. But a less risky way to do it, and one that will avoid individual stock selection, is to invest through a fund.
One of the most popular is the ProShares S&P 500 Dividend Aristocrat ETF (NOBL). It has provided a return of 1.67% in the 12 months ending May 31, and an average of 12.33% per year since the fund began in October 2013. The fund currently has a 1.92% dividend yield.
The so-called Dividend Aristocrats are popular because they represent 60+ S&P 500 companies, with a history of increasing their dividends for at least the past 25 years.
“Dividend Stocks are an excellent way to earn some quality yield on your investments while simultaneously keeping inflation at bay,” advises Lyle Solomon, Principal Attorney at Oak View Law Group, one of the largest law firms in America. “Dividends are usually paid out by well-established and successful companies that no longer need to reinvest all of the profits back into the business.”
It gets better. “These companies and their stocks are safer to invest in owing to their stature, large customer base, and hold over the markets,” adds Solomon. “The best part about dividend stocks is that many of these companies increase dividends year on year.”
The table below shows some popular dividend-paying stocks. Each is a so-called “Dividend Aristocrat”, which means it’s part of the S&P 500 and has increased its dividend in each of at least the past 25 years.
Company
Symbol
Dividend
Dividend Yield
AbbVie
ABBV
$5.64
3.80%
Armcor PLC
AMCR
$0.48
3.81%
Chevron
CVX
$5.68
3.94%
ExxonMobil
XOM
$3.52
4.04%
IBM
IBM
$6.60
5.15%
Realty Income Corp
O
$2.97
4.16%
Walgreen Boots Alliance
WBA
$1.92
4.97%
12. Preferred Stocks
Preferred stocks are a very specific type of dividend stock. Just like common stock, preferred stock represents an interest in a publicly traded company. They’re often thought of as something of a hybrid between stocks and bonds because they contain elements of both.
Though common stocks can pay dividends, they don’t always. Preferred stocks on the other hand, always pay dividends. Those dividends can be either a fixed amount or based on a variable dividend formula. For example, a company can base the dividend payout on a recognized index, like the LIBOR (London Inter-Bank Offered Rate). The percentage of dividend payout will then change as the index rate does.
Preferred stocks have two major advantages over common stock. First, as “preferred” securities, they have a priority on dividend payments. A company is required to pay their preferred shareholders dividends ahead of common stockholders. Second, preferred stocks have higher dividend yields than common stocks in the same company.
You can purchase preferred stock through online brokers, some of which are listed under “Growth Stocks” below.
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Preferred Stock Caveats
The disadvantage of preferred stocks is that they don’t entitle the holder to vote in corporate elections. But some preferred stocks offer a conversion option. You can exchange your preferred shares for a specific number of common stock shares in the company. Since the conversion will likely be exercised when the price of the common shares takes a big jump, there’s the potential for large capital gains—in addition to the higher dividend.
Be aware that preferred stocks can also be callable. That means the company can authorize the repurchase of the stock at its discretion. Most will likely do that at a time when interest rates are falling, and they no longer want to pay a higher dividend on the preferred stock.
Preferred stock may also have a maturity date, which is typically 30–40 years after its original issuance. The company will typically redeem the shares at the original issue price, eliminating the possibility of capital gains.
Not all companies issue preferred stock. If you choose this investment, be sure it’s with a company that’s well-established and has strong financials. You should also pay close attention to the details of the issuance, including and especially any callability provisions, dividend formulas, and maturity dates.
13. Growth Stocks
This sector is likely the highest risk investment on this list. But it also may be the one with the highest yield, at least over the long term. That’s why we’re including it on this list.
Based on the S&P 500 index, stocks have returned an average of 10% per year for the past 50 years. But it is important to realize that’s only an average. The market may rise 40% one year, then fall 20% the next. To be successful with this investment, you must be committed for the long haul, up to and including several decades.
And because of the potential wide swings, growth stocks are not recommended for funds that will be needed within the next few years. In general, growth stocks work best for retirement plans. That’s where they’ll have the necessary decades to build and compound.
Since most of the return on growth stocks is from capital gains, you’ll get the benefit of lower long-term capital gains tax rates, at least with securities held in a taxable account. (The better news is capital gains on investments held in retirement accounts are tax-deferred until retirement.)
You can choose to invest in individual stocks, but that’s a fairly high-maintenance undertaking. A better way may be to simply invest in ETFs tied to popular indexes. For example, ETFs based on the S&P 500 are very popular among investors.
You can purchase growth stocks and growth stock ETFs commission free with brokers like M1 Finance, Zacks Trade, Wealthsimple.
14. Annuities
Annuities are something like creating your own private pension. It’s an investment contract you take with an insurance company, in which you invest a certain amount of money in exchange for a specific income stream. They can be an excellent source of high yields because the return is locked in by the contract.
Annuities come in many different varieties. Two major classifications are immediate and deferred annuities. As the name implies, immediate annuities begin paying an income stream shortly after the contract begins.
Deferred annuities work something like retirement plans. You may deposit a fixed amount of money with the insurance company upfront or make regular installments. In either case, income payments will begin at a specified point in the future.
With deferred annuities, the income earned within the plan is tax-deferred and paid upon withdrawal. But unlike retirement accounts, annuity contributions are not tax-deductible. Investment returns can either be fixed-rate or variable-rate, depending on the specific annuity setup.
While annuities are an excellent idea and concept, the wide variety of plans as well as the many insurance companies and agents offering them, make them a potential minefield. For example, many annuities are riddled with high fees and are subject to limited withdrawal options.
Because they contain so many moving parts, any annuity contracts you plan to enter into should be carefully reviewed. Pay close attention to all the details, including the small ones. It is, after all, a contract, and therefore legally binding. For that reason, you may want to have a potential annuity reviewed by an attorney before finalizing the deal.
15. Alternative Investments
Alternative investments cover a lot of territory. Examples include precious metals, commodities, private equity, art and collectibles, and digital assets. These fall more in the category of high risk/potential high reward, and you should proceed very carefully and with only the smallest slice of your portfolio.
To simplify the process of selecting alternative assets, you can invest through platforms such as Yieldstreet. With a single cash investment, you can invest in multiple alternatives.
“Investors can purchase real estate directly on Yieldstreet, through fractionalized investments in single deals,” offers Milind Mehere, Founder & Chief Executive Officer at Yieldstreet. “Investors can access private equity and private credit at high minimums by investing in a private market fund (think Blackstone or KKR, for instance). On Yieldstreet, they can have access to third-party funds at a fraction of the previously required minimums. Yieldstreet also offers venture capital (fractionalized) exposure directly. Buying a piece of blue-chip art can be expensive, and prohibitive for most investors, which is why Yieldstreet offers fractionalized assets to diversified art portfolios.”
Yieldstreet also provides access to digital asset investments, with the benefit of allocating to established professional funds, such as Pantera or Osprey Fund. The platform does not currently offer commodities but plans to do so in the future.
Access to wide array of alternative asset classes
Access to ultra-wealthy investments
Can invest for income or growth
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Alternative investments largely require thinking out-of-the-box. Some of the best investment opportunities are also the most unusual.
“The price of meat continues to rise, while agriculture remains a recession-proof investment as consumer demand for food is largely inelastic,” reports Chris Rawley, CEO of Harvest Returns, a platform for investing in private agriculture companies. “Consequently, investors are seeing solid returns from high-yield, grass-fed cattle notes.”
16. Interest Bearing Crypto Accounts
Though the primary appeal of investing in cryptocurrency has been the meteoric rises in price, now that the trend seems to be in reverse, the better play may be in interest-bearing crypto accounts. A select group of crypto exchanges pays high interest on your crypto balance.
One example is Gemini. Not only do they provide an opportunity to buy, sell, and store more than 100 cryptocurrencies—plus non-fungible tokens (NFTs)—but they are currently paying 8.05% APY on your crypto balance through Gemini Earn.
In another variation of being able to earn money on crypto, Crypto.com pays rewards of up to 14.5% on crypto held on the platform. That’s the maximum rate, as rewards vary by crypto. For example, rewards on Bitcoin and Ethereum are paid at 6%, while stablecoins can earn 8.5%.
It’s important to be aware that when investing in cryptocurrency, you will not enjoy the benefit of FDIC insurance. That means you can lose money on your investment. But that’s why crypto exchanges pay such high rates of return, whether it’s in the form of interest or rewards.
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17. Crypto Staking
Another way to play cryptocurrency is a process known as crypto staking. This is where the crypto exchange pays you a certain percentage as compensation or rewards for monitoring a specific cryptocurrency. This is not like crypto mining, which brings crypto into existence. Instead, you’ll participate in writing that particular blockchain and monitoring its security.
“Crypto staking is a concept wherein you can buy and lock a cryptocurrency in a protocol, and you will earn rewards for the amount and time you have locked the cryptocurrency,” reports Oak View Law Group’s Lyle Solomon.
“The big downside to staking crypto is the value of cryptocurrencies, in general, is extremely volatile, and the value of your staked crypto may reduce drastically,” Solomon continues, “However, you can stake stable currencies like USDC, which have their value pegged to the U.S. dollar, and would imply you earn staked rewards without a massive decrease in the value of your investment.”
Much like earning interest and rewards on crypto, staking takes place on crypto exchanges. Two exchanges that feature staking include Coinbase and Kraken. These are two of the largest crypto exchanges in the industry, and they provide a wide range of crypto opportunities, in addition to staking.
Invest in Startup Businesses and Companies
Have you ever heard the term “angel investor”? That’s a private investor, usually, a high net worth individual, who provides capital to small businesses, often startups. That capital is in the form of equity. The angel investor invests money in a small business, becomes a part owner of the company, and is entitled to a share of the company’s earnings.
In most cases, the angel investor acts as a silent partner. That means he or she receives dividend distributions on the equity invested but doesn’t actually get involved in the management of the company.
It’s a potentially lucrative investment opportunity because small businesses have a way of becoming big businesses. As they grow, both your equity and your income from the business also grow. And if the business ever goes public, you could be looking at a life-changing windfall!
Easy Ways to Invest in Startup Businesses
Mainvest is a simple, easy way to invest in small businesses. It’s an online investment platform where you can get access to returns as high as 25%, with an investment of just $100. Mainvest offers vetted businesses (the acceptance rate is just 5% of business that apply) for you to invest in.
It collects revenue, which will be paid to you quarterly. And because the minimum required investment is so small, you can invest in several small businesses at the same time. One of the big advantages with Mainvest is that you are not required to be an accredited investor.
Still another opportunity is through Fundrise Innovation Fund. I’ve already covered how Fundrise is an excellent real estate crowdfunding platform. But through their recently launched Innovaton Fund, you’ll have opportunity to invest in high-growth private technology companies. As a fund, you’ll invest in a portfolio of late-stage tech companies, as well as some public equities.
The purpose of the fund is to provide high growth, and the fund is currently offering shares with a net asset value of $10. These are long-term investments, so you should expect to remain invested for at least five years. But you may receive dividends in the meantime.
Like Mainvest, the Fundrise Innovation Fund does not require you to be an accredited investor.
Low minimum investment – $10
Diversified real estate portfolio
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Final Thoughts on High Yield Investing
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Notice that I’ve included a mix of investments based on a combination of risk and return. The greater the risk associated with the investment, the higher the stated or expected return will be.
It’s important when choosing any of these investments that you thoroughly assess the risk involved with each, and not focus primarily on return. These are not 100% safe investments, like short-term CDs, short-term Treasury securities, savings accounts, or bank money market accounts.
Because there is risk associated with each, most are not suitable as short-term investments. They make most sense for long-term investment accounts, particularly retirement accounts.
For example, growth stocks—and most stocks, for that matter—should generally be in a retirement account. While there will be years when you will suffer losses in your position, you’ll have enough years to offset those losses between now and retirement.
Also, if you don’t understand any of the above investments, it will be best to avoid making them. And for more complicated investments, like annuities, you should consult with a professional to evaluate the suitability and all the provisions it contains.
FAQ’s on High Yield Investment Options
What investment has the highest yield?
The investment with the highest yield will vary depending on a number of factors, including current market conditions and the amount of risk an investor is willing to take on. Generally speaking, investments with the potential for high yields also come with a higher level of risk, so it’s important for investors to carefully consider their options and choose investments that align with their financial goals and risk tolerance.
Some examples of high-yield investments include:
1. Stocks: Some stocks may offer high dividend yields, which is the annual dividend payment a company makes to its shareholders, expressed as a percentage of the stock’s current market price.
2. Real estate: Investing in real estate, either directly by purchasing property or indirectly through a real estate investment trust (REIT), can potentially generate high returns in the form of rental income and appreciation of the property value.
3. High-yield bonds: High-yield bonds, also known as junk bonds, are bonds that are issued by companies with lower credit ratings and thus offer higher yields to compensate for the added risk.
4. Private lending: Investing in private loans, such as through peer-to-peer lending platforms, can potentially offer high yields, but it also carries a higher level of risk.
5. Commodities: Investing in commodities, such as precious metals or oil, can potentially generate high returns if the prices of those commodities rise. However, the prices of commodities can also be volatile and subject to market fluctuations.
It’s important to note that these are just examples and not recommendations. As with any investment, it’s crucial to carefully research and consider all the potential risks and rewards before making a decision.
Where can I invest my money to get high returns?
There are a number of places you can invest your money to get high returns. One option is to invest in stocks, which typically offer higher returns than other investment options. Another option is to invest in bonds, which are considered a relatively safe investment option.
You could also invest in real estate, which has the potential to provide high returns if done correctly. Finally, you could also invest in commodities, such as gold or silver, which can be a risky investment but can also offer high returns.
What investments can I make a 10% return?
It’s difficult to predict exactly what investments will generate a 10% return, as investment returns can vary depending on a number of factors, including market conditions and the performance of the specific investment. Some investments, such as stocks and real estate, have the potential to generate returns in excess of 10%, but they also come with a higher level of risk. It’s important to remember that past performance is not necessarily indicative of future results, and that all investments carry some degree of risk