Online Stock Brokers for New Investors: Get Started with $100

best online stock broker for beginners

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If you’re thinking of investing, an online stock broker might be just what you’re looking for.

Some people believe that investing is not for them, because they are young or they don’t have a high income. But these are not reasons to deny yourself this important and valuable income source. As CNN Money says, you only need $5 to start investing.

Stay Safe with Online Investing

And although you don’t have to be rich to invest, and it’s even OK to be poor and invest, you should make sure you’re financially stable before taking the leap. What do we mean by that?

You should have emergency savings. You don’t want all your disposable income tied up in a place you can’t get to. Vanguard says you should have three to six months’ worth of living expenses saved up before you make any unnecessary expenditures. This is in case you lose your job, get sick or injured, or can’t work for some other reason.

With an emergency fund, you won’t have to panic. You’ll have a safety net, which will provide you time to find another job or an alternative situation.

Risk & Online Investing

Think of investments like a savings account that pays better dividends. Usually. And usually is the keyword. Because with investments, you could make a little, a lot, or lose it all. The risk isn’t the same for every investment, however. For instance, investing in Apple or AT&T is probably a pretty safe bet. But an overseas startup you don’t know anything about? Not so much.

If you have a job that offers a 401(k) plan as a benefit, your investments are taken care of by whichever plan your company chooses. You get to choose the risk level, but that’s about it. And as you may know, the nest eggs workers built up for years took serious hits during the Great Recession.

In a recent Washington Post interview, philanthropist David Rubenstein said the U.S. has had a recession every seven years since World War II, on average. Some are worse than others, but you can expect cyclical downturns.

Those who left their money in their retirement accounts saw a lot of the money come back. But others who were near retirement didn’t have the luxury to wait. That’s why there are certain “rules” trustworthy investors go by to protect their clients, and one of them is to take on less risk the closer you get to retirement.

How to Find an Online Stock Broker for Beginners

So if you have some money to invest and you don’t have access to a 401(k) — or even if you do — you probably have questions about who you should partner with, is there a broker that can help beginners?  Morgan Stanley? Probably not. They charge higher fees and commissions. Plus, they might laugh at you for wanting to invest less than $1 million.

You are certainly free to trade stocks online on your own. Many people do. But if you don’t have any background or specific knowledge in this area, you might take on more risk than you’d like.

Kiplinger’s advises using online stock brokers for those wanting to invest small sums of money. With online brokers, you can avoid paying high fees and commissions as well.

StockBrokers.com, a review site, recommends some of the best online stock brokers for beginners. In their assessment, they consider website UX, the value of its educational content and how helpful it is with research.

Their favorite is TD Ameritrade. Among its pluses, this online brokerage offers hundreds of webinars, videos, and classes to get you up to speed in the investment game.

Person using a calculator while looking at their mobile phone.
Learning about how the stock market works can help you be a more astute investor.

StockBrokers.com recommends Fidelity Investments. It charges one of the cheapest fees at $4.95 per trade. Their options fee is the same. Charles Schwab charges the same fees, but some other online brokers charge $6.95 per trade.

Mutual fund fees are all over the map. Fidelity’s is $49.95; Merrill Edge and E*Trade both charge under $20, and Charles Schwab charges $76.

Although Fidelity only offers 91 commission-free exchange-traded funds while the other brokerage firms offer more than 200 (except for Merrill Edge, which offers none), Fidelity is still the favorite because of its available research and ease of use. Anything you want to know about a potential purchase — annual yield, volume, etc. — is readily accessible in an easy-to-use page that includes charts, graphs and other helpful info and graphics.

It also allows you to compare the fund you’re considering with other similar choices.

Online Stock Broker Minimums

Many online brokers require a minimum to start investing. While Fidelity doesn’t charge a maintenance fee, they do require a hefty $2,500 minimum deposit.

The NASDAQ reports that TD Ameritrade has no minimum, while other online brokers commonly charge between $500 and $2,000 minimums.

So if you’re just starting out or don’t have much money to invest, you’ll have to choose a no-minimum online stock broker. TopRatedFirms reviews brokerage houses and listed some options, including Ally Invest, Motif Investing and Firstrade.

Online Stock Broker for Dummies

The Dummies series suggests using a trading simulator to get used to the process before investing real money. However, investing in stocks, bonds, and mutual funds is not the same as day trading. Investing is measured in years; day trading in minutes or even seconds.

Investor Junkie recommends TD Ameritrade, TradeStation, and Kapitall as good places to open a virtual account, a.k.a. a paper trading account.

How well does a simulated account prepare you for the real thing?

In a Quora discussion, a member says that she is making $300-$400 a day with her virtual account and asks if she is ready to start playing the market with real money. Another member wisely reminds her that as much as you learn from a simulator, when you’re using real money, it’s different.

You won’t be as bold. You’ll be more conservative with real money, so you won’t make as much. You probably won’t lose as much either, but it’s a possibility.

Further, time is a real consideration. The member who asked the question has only been trading for two weeks. The member who answered advises the new trader to put six months into the simulated investor account before going live, because the gains could be due to short-term market considerations, and not astute management.

Take this advice to heart if you do poorly at first as well. It might not be your fault; it might be a market fluctuation. Besides, we’re not talking about day trading here, we’re talking about investing in stable companies and watching your investment grow. Part of the watching can sometimes include seeing your investment lose value, but if you invested wisely simply waiting it out is often the answer.

Screenshot of market data.
Fluctuations in the stock market are normal and not a reason to panic.

Investing Shouldn’t be Just Like Gambling

The Motley Fool reminds investors that dips in the stock market are natural and expected. If you have stocks worth $1,000 and the value drops overnight to $750, it can be disheartening. However, the money isn’t really gone unless you sell at that point. If you just wait, the value is likely to rise again.

Warren Buffett advises stockholders not to check the market all the time. It’s stressful to see your stocks losing value, and since it’s often temporary, watching them closely is just adding anxiety to your life unnecessarily. He says you should only buy stocks that you are willing to keep for at least 10 years.

So regardless of how you invest or whether you use an online stock broker, the key is to keep a cool head and have realistic expectations.

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