When it comes to investing, choosing where to invest is often the first and most crucial choice you make. Choose correctly, and you’ll be in a great spot to pick from a wide variety of low-cost funds and make trades for free. Choose poorly, and your investment options will be limited, and your fees will be high.
When investing over a long time horizon, fees can make a huge difference it your overall returns and determine whether or not you can reach your recommended retirement savings goals by age.
Online brokers come in all shapes and sizes, but the three things I always look for in a good broker are:
- Low fees
- Wide variety of low-cost index funds and ETFs (for you non-stock traders out there)
- Ease of use
Below we’ll break down some of the best brokers out there and score them on the three criteria above. This way, you can make a smart personal finance decision and choose the best online broker for you.
First, here’s a quick primer on what makes an online broker (you experts can skip ahead).
Table of Contents
What is an Online Broker?
An online broker is essentially the same thing as a traditional broker, except, you guessed it, you utilize them via the internet.
Traditional stockbrokers give you a platform to execute trades and make investment decisions. That is, you pick which investment vehicles you want to invest in, and then work through a broker to make the purchase (or, eventually, the sale).
In the simplest terms possible, an online broker is a middle man. They are the bridge between you and the stock market.
The Best Online Brokers for Index Investing
Here are some of the best online brokers out there for index investing.
Note: Scoring is out of 10 points. With three categories, the total max score for each broker is 30.
Charles Schwab
SCORE: 26
- Fees: 9
- Variety: 10
- Ease: 7
Charles Schwab is one of the best online brokers out there. They offer a wide range of low-cost index funds and ETFs, and this year dropped their trade commission fee to better compete with some new fintech companies (like Robinhood).
Their platform is relatively easy to use. But like with anything, it takes some time to get up to speed on. Once you’re familiar, though, it’s easy to set up a sound index investing strategy with Schwab.
Fee Snapshot:
- 0.02% lowest fee for an ETF or index fund
- $0 commission per trade
Noteworthy Funds:
- SWTSX – Schwab Total Stock Market Index Fund (0.03% expense ratio)
- SWISX – Schwab International Index Fund (0.06% expense ratio)
- SWAGX – Schwab U.S. Aggregate Bond Index Fund (0.04% expense ratio)
Vanguard
SCORE: 24
- Fees: 8
- Variety: 9
- Ease: 7
Vanguard is the original and arguably the best place to buy index funds. It was founded by John Bogle, the man who created index funds himself.
While they don’t have the absolute lowest fees or sexiest online platform, they do have a long history of being a trusted broker for index investors. Plus, their fees are still pretty dang low.
Fee Snapshot:
- 0.04% lowest fee for an ETF or index fund
- $0 commission per trade (with Vanguard funds)
Noteworthy Funds:
- VTSAX – Vanguard Total Stock Market Index Fund (0.04% expense ratio)
- VTIAX – Vanguard Total International Stock Index Fund (0.11% expense ratio)
- VBTLX – Vanguard Total Bond Market Fund (0.05% expense ratio)
Fidelity
SCORE: 22
- Fees: 10
- Variety: 5
- Ease: 7
Fidelity has slightly less index fund options compared to Vanguard and Schwab, it seems, but that’s not always a huge deal. Especially if you are building a simple three-fund portfolio.
They do offer funds with 0% expense ratios. That’s right, 0%!
That is something that neither Schwab or Vanguard offers at this point. Though, it could be something that changes in the future with price becoming more and more of a focus for these online brokers.
Fee Snapshot:
- 0.00% lowest fee for an ETF or index fund
- $0 commission per trade (with Fidelity funds)
Noteworthy Funds:
- FNILX – Fidelity ZERO Large Cap Index Fund (0.00% expense ratio)
- FZROX – Fidelity ZERO Total Market Index Fund (0.00% expense ratio)
- FZILX – Fidelity ZERO International Index Fund (0.00% expense ratio)
The Best Online Brokers for Stock Trading
Here are two of the best online brokers out there for stock trading, in case index investing is not for you.
Note: Scoring is out of 10 points. With three categories, the total max score for each broker is 30.
Charles Schwab
SCORE: 27
- Fees: 10
- Variety: 10
- Ease: 7
When it comes to stock trading stocks, Schwab makes this list too. Except, their score goes up one point. That’s because Schwab offers free trades on all stocks (as of mid-2019), and there are no fees or expense ratios when it comes to owning stocks (like there are with index funds or ETFs).
Still holding Schwab back is the somewhat clunky online platform. Though, what it lacks in appearance, it makes up for in robust research tools.
Fee Snapshot:
- $0 commission per trade
Robinhood
SCORE: 28
- Fees: 10
- Variety: 10
- Ease: 8
Robinhood gets the slight edge over Schwab because of the simple and intuitive platform. That, combined with free trading, is hard to beat!
Though, it does offer a bare-bones platform. Which helps keep it easy to navigate, but if you’re looking to do robust stock research, you’ll likely need to do that outside of the Robinhood app.
Important to note here as well is that simple is not always better when it comes to investing. Robinhood makes stock trading very easy, almost like a game. Which it certainly is not! All trades should be made carefully and only after doing diligent research.
Fee Snapshot:
- $0 commission per trade
Bonus: The Best Robo-Advisors
Robo-advisors are even newer than online brokers and have somewhat changed the game for index investors. Those looking for a hands-off approach have found a solution in robo-advisors.
Here are two robo-advisors worth checking out.
Note: Scoring is out of 10 points. With three categories, the total max score for each robo-advisor is 30, except Blooom, is scored out of 20 since they don’t offer funds themselves.
Betterment
SCORE: 22
- Fees: 5
- Variety: 7
- Ease: 10
Robo-advisors, in general, win out on ease of use, plain and simple. Especially with Betterment, who offers a clean and easy to navigate interface. Plus, once you answer their upfront questions, they manage your investments for you. It doesn’t get much easier than that!
Though, Betterment does come with a cost – a 0.25% management fee. That fee adds a significant cost to your investments, so you need to be sure that the simplicity that Betterment brings to your life is worth the extra cost!
Fee Snapshot:
- 0.25% management fee
- 0.03%-0.25% range of fees for ETFs
Noteworthy Funds:
- SCHB – Dow Jones U.S. Broad Stock Market (0.03% expense ratio)
- VOE – CRSP US Mid Cap Value (0.07% expense ratio)
- SCHF – FTSE Developed ex-US (0.06% expense ratio)
Ellevest
SCORE: 23
- Fees: 5
- Variety: 8
- Ease: 10
A notable entrant in the robo-advisor space is Ellevest, who is on a mission to close the gender gap in investment advice. They are similar to Betterment in that it chooses a diversified ETF portfolio for you based on your investment goals.
But where Ellevest differs is that it uses a proprietary algorithm based on gender and many other factors to determine how much money you’ll need. (For example, women tend to live longer and their peak earning years are on average earlier than men, so it makes sense that their investment needs are different).
Fee Snapshot:
- 0.25% management fee (Ellevest Digital), 0.50% (Premium access to CFPs + career coaching)
- 0.03% – 0.25% range of fees for ETFs
Noteworthy Funds:
- VTI – Vanguard Total Stock Market (0.03% expense ratio)
- BND – Vanguard Total Bond Market (0.035% expense ratio)
- SCHP – Schwab U.S. TIPS (0.05% expense ratio)
Blooom
SCORE: 17* (out of 20)
- Fees: 7
- Variety: n/a*
- Ease: 10
Blooom is a unique robo-advisor in that they mainly focus on 401(k)s. They don’t offer a variety of funds themselves, but rather they connect to your existing 401(k) provider to offer optimization tips and potentially even manage your account.
Blooom offers two levels of service:
- A Free 401(k) Health Check-Up: Blooom can hook up to your 401(k) to review your account and provide recommendations on how to optimize your investments
- Paid Ongoing 401(k) Management: Blooom offers ongoing 401(k) management, so you can take a more hands-off approach and let them take the wheel
Fee Snapshot:
- Free 401(k) analysis
- $10/month flat fee for ongoing 401(k) management
What The Blooom Free Analysis Provides:
- Diversification recommendation
- Fee check-up – ensuring you are in the lowest fee funds possible
- Obvious watch-outs, like being invested in company stock
- Retirement tracking snapshot
Summary: The Best Online Brokers
Remember, choosing an online broker is one of the first investment decisions you make, and it’s an important one! It sets up the rest of your investing career.
Whether you’re looking to invest in index funds or stocks, there’s an online broker that is out there for you. Choose wisely!
This article originally appeared on The Money Mix and has been republished with permission.
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