Investing with a Discount Broker Isn't Always Wise

Working with a discount broker can seem very attractive as it will allow you to save money on commissions. Although it is attractive, working with a discount broker might not be your best option. Here are a few of the potential downsides of investing with a discount broker.

Do-It-Yourself Investing

One of the biggest problems with working with discount brokers is that you will basically be engaging in do-it-yourself investing. This means that you are going to be making all of the individual investment decisions for your own portfolio. You are going to have to spend a considerable amount of time researching securities. You will have to know a large amount of information about the financial markets and how they work. While some people are equipped to do this, the vast majority of people are not. In order to be successful in the financial markets, you have to go through a lot of training and education. Discount brokers are not going to provide you with much assistance when it comes to helping you develop your portfolio. This has left many investors in the dark and has caused them to miss out on valuable returns that they could have been earning.

Lack of Options

Another problem that you might run into with a discount broker is that you will have a lack of options when it comes to investing. Many of the discount brokerages out there only offer a very limited selection of securities for you to choose from. They are going to pick the most popular stocks and mutual funds for you to purchase. While this is fine for some investors, other people want to have a larger selection and are looking for specific types of investments. If you try to save money on your broker, you are going to find out that you may only be able to pick from some of the mainstream investments in the market.

Advantages of Traditional Brokers

Even though you are going to have to spend a little bit more money for a traditional broker, you will be able to benefit in some different ways. The biggest benefit that you will be able to receive is personalized advice. With discount brokers, you are going to get generic investment advice that was created for the masses. With a traditional broker, they are going to be able to sit down with you and look at your portfolio. They will help you come up with some investment objectives and realistic targets to shoot for. Once you have given than the information about your investment goals, they will actually work with you to develop a portfolio. They will find out what your risk tolerance is and build a portfolio of investments based on this risk tolerance. This is the type of service that many investors need because they do not know that much about the financial markets. If you go with a discount broker, you are basically going to be on your own.

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