Buying Stocks

The most common way to buy stock is to deal with a broker,
which can be either land-based (the kind with folks who
work in offices downtown) or in cyberspace (accessed via the
Internet).

Choosing a broker

The first big choice you need to make is deciding which kind
of broker you are going to deal with: full-service or discount.
If you believe that you are going to need a
lot of advice, a
full-service broker will probably better serve you. If you are
making your own decisions about stocks, by all means use a
discount broker. Discount brokers charge much lower commissions
than do full-service brokers.

Many discount brokers have both electronic and “bricks and
mortar” systems of operation. If you discount broker is on
the Web, you can enter your order electronically and receive
confirmation the same way. Some discount brokers have
branch offices where you can sit down with a broker and discuss
your investment objectives and goals.

Either way, you can obtain commission costs and product
information by visiting a discount broker’s Web site, by calling
their phone number (usually toll-free), or by stopping by
the branch office.

In addition to discount commissions, most discount brokers
also offer other products and services, such as mutual funds,
IRAs, research reports, bonds, and others.

Full-service brokers are paid by the commissions they earn
on buying and selling stocks and other products for clients.
This arrangement can lead to a tendency on their part to recommend
frequent trading of stocks rather than pursuing a
“buy and hold” strategy. This advice can put their interests
in conflict with yours. So if you use a full-service broker,
avoid miscommunication by making sure that she or he
knows that you are not interested in frequent trading but in
buying good stocks and holding them for the long term.

You may be better off if you find a good financial advisor to
guide you on stock purchases and perhaps on other aspects
of your financial program. These advisors often work for a
flat fee on an hourly basis.

If you decide to work with a
full-service broker, you have to
choose a broker one way or another. How do you make this
choice? You probably select a broker pretty much the same
way you select a doctor, a lawyer, or other professional.
You ask people for recommendations. You look in the phone
book. You see ads in the paper or on TV. After you acquire a
list of potential brokers, take the process at least one step further.
After you get several names, make some calls.

Call their offices and ask about account minimums and commission
costs. Find out how convenient their services may
be. If you’re put on hold for longer than a few minutes or the
broker asks to call you back but never does, he or she may
not be the broker for you.
Narrow your choices down to two or three brokers and then
interview each of them.

Sooner or later, you will get on a
mailing list that is sold to
brokers. Then you start getting unsolicited calls. All brokers
have a good line and can be very persuasive. My recommendation:
Find a financial planner in your area and deal with
her or him face to face. A good financial planner whom you
trust can be a very helpful to you as you work to achieve your
financial goals.